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What changed in NORTHRIM BANCORP INC's 10-K — 2022 vs 2023

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Paragraph-level year-over-year comparison of NORTHRIM BANCORP INC's 2022 and 2023 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2023 report.

+430 added−361 removedSource: 10-K (2024-03-08) vs 10-K (2023-03-07)

Top changes in NORTHRIM BANCORP INC's 2023 10-K

430 paragraphs added · 361 removed · 263 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

71 edited+23 added−26 removed100 unchanged
Biggest changeAt June 30, 2022, the date of the most recently available information, Northrim Bank had approximately a 14% share of the Alaska bank deposits, 18% in the Anchorage area, 23% in Juneau, 17% in Matanuska-Susitna, 14% in Sitka, 12% in Fairbanks, 9% in Ketchikan, and 8% in the Kenai Peninsula. 9 The following table sets forth market share data for the banks and credit unions having a presence in Alaska as of June 30, 2022, the most recent date for which comparative deposit information is available.
Biggest changeThe following table sets forth market share data for the banks and credit unions having a presence in Alaska as of June 30, 2023, the most recent date for which comparative deposit information is available.
Long Term Economic Factors We believe the long-term growth of the Alaska economy will most likely be determined by large scale natural resource development projects. Several multi-billion dollar projects can potentially advance in the moderate-term. Some of these projects include copper, gold and molybdenum production at the proposed Donlin mine and continued exploration in the National Petroleum Reserve Alaska.
Long Term Economic Factors We believe the long-term growth of the Alaska economy will most likely be determined by large scale natural resource development projects. Several multi-billion dollar projects can potentially advance in the moderate-term. Some of these projects include copper, gold and molybdenum production at the proposed Donlin Gold mine and continued exploration in the National Petroleum Reserve Alaska.
The regulations establish five capital categories; under the Rules, a bank generally is: “well capitalized” if it has a total risk-based capital ratio of 10.0% or more, a Tier 1 risk-based capital ratio of 8.0% or more, a common equity Tier 1 risk-based ratio of 6.5% or more, and a leverage capital ratio of 5.0% or more, and is not subject to any written agreement, order or capital directive to meet and maintain a specific capital level for any capital measure; 12 “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or more, a Tier 1 risk-based capital ratio of 6.0% or more, a common equity Tier 1 risk-based ratio of 4.5% or more, and a leverage capital ratio of 4.0% or more; “undercapitalized” if it has a total risk-based capital ratio less than 8.0%, a Tier 1 risk-based capital ratio less than 6.0%, a common equity risk-based ratio less than 4.5% or a leverage capital ratio less than 4.0%; “significantly undercapitalized” if it has a total risk-based capital ratio less than 6.0%, a Tier 1 risk-based capital ratio less than 4.0%, a common equity risk-based ratio less than 3.0% or a leverage capital ratio less than 3.0%; and “critically undercapitalized” if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%.
The regulations establish five capital categories; under the Rules, a bank generally is: “well capitalized” if it has a total risk-based capital ratio of 10.0% or more, a Tier 1 risk-based capital ratio of 8.0% or more, a common equity Tier 1 risk-based ratio of 6.5% or more, and a leverage capital ratio of 5.0% or more, and is not subject to any written agreement, order or capital directive to meet and maintain a specific capital level for any capital measure; “adequately capitalized” if it has a total risk-based capital ratio of 8.0% or more, a Tier 1 risk-based capital ratio of 6.0% or more, a common equity Tier 1 risk-based ratio of 4.5% or more, and a leverage capital ratio of 4.0% or more; “undercapitalized” if it has a total risk-based capital ratio less than 8.0%, a Tier 1 risk-based capital ratio less than 6.0%, a common equity risk-based ratio less than 4.5% or a leverage capital ratio less than 4.0%; “significantly undercapitalized” if it has a total risk-based capital ratio less than 6.0%, a Tier 1 risk-based capital ratio less than 4.0%, a common equity risk-based ratio less than 3.0% or a leverage capital ratio less than 3.0%; and “critically undercapitalized” if it has a ratio of tangible equity to total assets that is equal to or less than 2.0%.
These types of lending products have provided us with needed market opportunities and generally provide higher net interest margins compared to other types of lending such as consumer lending. However, they also involve greater risks, including greater exposure to changes in local economic conditions. Additionally, in 2021 and 2020, we originated a significant amount of Paycheck Protection Program ("PPP") loans.
These types of lending products have provided us with market opportunities and generally provide higher net interest margins compared to other types of lending such as consumer lending. However, they also involve greater risks, including greater exposure to changes in local economic conditions. Additionally, in 2021 and 2020, we originated a significant amount of Paycheck Protection Program ("PPP") loans.
Higher or more sensitive risk weights are assigned to various categories of assets, among which are commercial real estate, credit facilities that finance the acquisition, development or construction of real property, certain exposures or credits that are 90 days past due or are nonaccrual, foreign exposures, certain corporate exposures, securitization exposures, equity exposures and in certain cases mortgage servicing rights and deferred tax assets.
Higher or more sensitive risk weights are assigned to various categories of assets, among which are commercial real estate, credit facilities that finance the acquisition, development or construction of real property, certain 11 exposures or credits that are 90 days past due or are nonaccrual, foreign exposures, certain corporate exposures, securitization exposures, equity exposures and in certain cases mortgage servicing rights and deferred tax assets.
Residential mortgage choices include several products from AHFC including first-time homebuyer, veteran's and rural community programs; Federal Housing Authority, or "FHA" loans; Veterans Affairs, or "VA" loans; Jumbo loans; and various conventional mortgages. The Company retains servicing rights on loans sold to AHFC since implementing a loan servicing program in July 2015.
Residential mortgage choices include several products from AHFC including first-time homebuyer, veteran's and rural community programs; Federal Housing Authority, or "FHA" loans; Veterans Affairs, or "VA" loans; and various conventional mortgages. The Company retains servicing rights on loans sold to AHFC since implementing a loan servicing program in July 2015.
The Anchorage Economic Development Corporation estimates that, for most Anchorage households, distributions from the Alaska Permanent Fund Corporation exceed other Alaska taxes to which those households are subject. Competition We operate in a highly competitive and concentrated banking environment.
The Anchorage Economic Development Corporation estimates that, for most Anchorage households, distributions from the Alaska Permanent Fund Corporation exceed other Alaska taxes to which those households are subject. 8 Competition We operate in a highly competitive and concentrated banking environment.
In the liquidation or other resolution of a failed insured depository institution, claims for administrative expenses (including certain employee compensation claims) and deposits are afforded a priority over other general unsecured claims, including non-deposit claims, and claims of a parent company such as the Company.
In the liquidation or other resolution of a failed insured depository institution, claims for administrative expenses (including certain employee compensation claims) and deposits are afforded a priority over other general unsecured claims, 12 including non-deposit claims, and claims of a parent company such as the Company.
The policy provides that bank holding companies should not maintain a level of cash dividends that undermines a bank holding company’s ability to serve as a source of strength to its banking subsidiaries.
The policy provides that bank holding companies should not maintain a level of cash dividends that undermines a bank holding company’s ability to serve as a source of strength to its 10 banking subsidiaries.
Other Services : In addition to our traditional deposit and lending services, we offer our customers several convenience services: Mobile Web and Text Banking, consumer online account opening, Personal Finance, Online Documents, Consumer Debit Cards, Business Debit Cards, My Rewards for consumer debit cards, retail lockbox services, card controls, Consumer Credit Cards, Business Credit Cards, Corporate Purchase Cards, Integrated Payables, home equity advantage access cards, telebanking, and automated teller services.
Other Services : In addition to our traditional deposit and lending services, we offer our customers several convenience services: Mobile Web and Mobile APP Banking, consumer online account opening, Personal Finance, Online Documents, Consumer Debit Cards, Business Debit Cards, My Rewards for consumer debit cards, retail lockbox services, card controls, Consumer Credit Cards, Business Credit Cards, Corporate Purchase Cards, Integrated Payables, home equity advantage access cards, telebanking, and automated teller services.
The oil industry plays a significant role in the economy of Alaska, but revenues for the State of Alaska are less dependent on the oil industry than they have been historically due to the implementation of a percent of market value ("POMV") concept that has balanced and created more certainty in state revenue streams.
The oil industry plays a significant role in the economy of Alaska, but revenues for the State of Alaska are less dependent on the oil industry than they have been historically due to the implementation of a percent of market value (“POMV”) concept that has balanced and created more certainty in state revenue streams.
Alaska is strategically located on the Pacific Rim, within nine hours by air from 95% of the northern hemisphere, and Anchorage has become a worldwide air cargo and transportation link between the United States and international business in Asia and Europe. The economy of Alaska is dependent upon natural resource industries.
Alaska is strategically located on the Pacific Rim, within nine hours by air from 95% of the northern hemisphere, and Anchorage is a worldwide air cargo and transportation link between the United States and international business in Asia and Europe. The economy of Alaska is dependent upon natural resource industries.
Common equity Tier 1 capital generally consists of retained earnings and common stock instruments (subject to certain adjustments), as well as accumulated other comprehensive income ("AOCI"), except to the extent that the Company and the 11 Bank exercise a one-time irrevocable option to exclude certain components of AOCI.
Common equity Tier 1 capital generally consists of retained earnings and common stock instruments (subject to certain adjustments), as well as accumulated other comprehensive income (“AOCI”), except to the extent that the Company and the Bank exercise a one-time irrevocable option to exclude certain components of AOCI.
Following the enactment of certain federal legislation in 2018, the federal banking regulators (including the FDIC and FRB) proposed a rule intended to simplify capital rules for certain community banks and their holding companies, the Community Bank Leverage Ratio ("CBLR").
Following the enactment of certain federal legislation in 2018, the federal banking regulators (including the FDIC and FRB) proposed a rule intended to simplify capital rules for certain community banks and their holding companies, the Community Bank Leverage Ratio (“CBLR”).
Management intends to maintain capital ratios for the Bank in 2023 that exceed the FDIC’s requirements for the “well-capitalized” capital requirement classification. The dividends that the Bank pays to the Company will be limited to the extent necessary for the Bank to meet the regulatory requirements of a “well-capitalized” bank.
Management intends to maintain capital ratios for the Bank in 2024 that exceed the FDIC’s requirements for the “well-capitalized” capital requirement classification. The dividends that the Bank pays to the Company will be limited to the extent necessary for the Bank to meet the regulatory requirements of a “well-capitalized” bank.
The Bank has 18 branch locations in Alaska; eight in Anchorage, one in Wasilla, two in Juneau, two in Fairbanks, one in Ketchikan, one in Sitka, one in Eagle River, one in Nome, and one in Soldotna. Additionally, we have a loan production office in Kodiak.
The Bank has 19 branch locations in Alaska; eight in Anchorage, one in Wasilla, two in Juneau, two in Fairbanks, one in Ketchikan, one in Sitka, one in Eagle River, one in Nome, one in Soldotna, and one in Kodiak. Additionally, we have a loan production office in Homer.
In addition, Northrim provides for a strong work/life balance, including generous paid time off and paid parental leave. 4 Employee Profile We consider our relations with our employees to be highly satisfactory. We had 469 full-time equivalent employees at December 31, 2022. None of our employees are covered by a collective bargaining agreement.
In addition, Northrim provides for a strong work/life balance, including generous paid time off and paid parental leave. Employee Profile We consider our relations with our employees to be highly satisfactory. We had 472 full-time equivalent employees at December 31, 2023. None of our employees are covered by a collective bargaining agreement.
Approximately 11% of those in executive and senior management positions identify as a member of a racial minority, 4% identify as individuals with a disability, and 4% identify as veterans. Diversity, Equity, and Inclusion We strive to ensure a respectful, diverse, and inclusive environment and experience for all of our employees.
Approximately 9% of those in executive and senior management positions identify as a member of a racial minority, 6% identify as individuals with a disability, and 6% identify as veterans. Diversity, Equity, and Inclusion We strive to ensure a respectful, diverse, and inclusive environment and experience for all of our employees.
In 2022, 25% of our revenue was derived from the residential housing market in the form of loan fees and interest on residential construction and land development loans and income from our Home Mortgage Lending segment as compared to 38% and 47% in 2021 and 2020, respectively.
In 2023, 24% of our revenue was derived from the residential housing market in the form of loan fees and interest on residential construction and land development loans and income from our Home Mortgage Lending segment as compared to 25% and 38% in 2022 and 2021, respectively.
Approximately 49% of the Company's employees are working remotely as of December 31, 2022 either on a full- or part-time basis, including employees that work remotely part-time and work in the office part-time, which we refer to as a "hybrid" work from home arrangement.
Approximately 47% of the Company's employees are working remotely as of December 31, 2023 either on a full- or part-time basis, including employees that work remotely part-time and work in the office part-time, which we refer to as a "hybrid" work from home arrangement.
In 2023, we expect NFS to continue to penetrate these markets and to continue to contribute to the Company’s profitability. Deposit Services : Our deposit services include business and personal noninterest-bearing checking accounts and interest-bearing time deposits, checking accounts, savings accounts, and individual retirement accounts.
In 2024, we expect NFS to continue to operate in these markets and to continue to contribute to the Company’s profitability. Deposit Services : Our deposit services include business and personal noninterest-bearing checking accounts and interest-bearing time deposits, checking accounts, savings accounts, and individual retirement accounts.
In addition to its review of NAICS codes, the Company has also identified concentrations in various industries that may be adversely impacted by the COVID-19 pandemic and a decline in oil prices.
In addition to its review of NAICS codes, the Company has also identified concentrations in various industries that may be adversely impacted by a future health pandemic and a decline in oil prices.
Recently, in November 2021, the federal banking agencies adopted a Final Rule, with compliance required by May 1, 2022, that requires banking organizations to notify their primary banking regulator within 36 hours of determining that a “computer-security incident” has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, the banking organization’s ability to carry out banking operations or deliver banking products and services to a material portion of its customer base, its businesses and operations that would result in material loss, or that would impact the stability of the United States.
Effective in 2022, the federal banking agencies adopted a Final Rule, that requires banking organizations to notify their primary banking regulator within 36 hours of determining that a “computer-security incident” has materially disrupted or degraded, or is reasonably likely to materially disrupt or degrade, the banking organization’s ability to carry out banking operations or deliver banking products and services to a material portion of its customer base, its businesses and operations that would result in material loss, or that would impact the stability of the United States.
Because of their size, we believe each of these projects faces tremendous challenges. We believe various political decisions need to be made by government regulators, issues need to be resolved in the court system, and multi-billion dollar financial commitments need to be made by the private sector if these large natural resource projects are to advance.
We believe various political decisions need to be made by government regulators, issues need to be resolved in the court system, and multi-billion dollar financial commitments need to be made by the private sector if these large natural resource projects are to advance.
The Company has grown to be the third largest commercial bank in Alaska in terms of deposits, with $2.4 billion in total deposits and $2.7 billion in total assets at December 31, 2022.
The Company has grown to be the third largest commercial bank in Alaska in terms of deposits, with $2.5 billion in total deposits and $2.8 billion in total assets at December 31, 2023.
These provisions, among other things, limit the ability of banks and other financial institutions to disclose nonpublic consumer information to non-affiliated third parties. The regulations require disclosure of privacy policies and allow consumers to prevent certain personal information from being shared with non-affiliated third parties.
The Gramm-Leach-Bliley Act (the “GLB Act”) also included extensive consumer privacy provisions. These provisions, among other things, limit the ability of banks and other financial institutions to disclose nonpublic consumer information to non-affiliated third parties. The regulations require disclosure of privacy policies and allow consumers to prevent certain personal information from being shared with non-affiliated third parties.
While state government revenue from oil royalties is immediately and directly impacted by a drop in oil prices, we believe that the large scale and nature of oil wells in Alaska are such that project commitments that currently exist will most likely not be disrupted by short-term price volatility. 8 We believe our exposure to the tourism industry diversifies the Company's customer base in the long-term.
While state government revenue from oil royalties is immediately and directly impacted by a drop in oil prices, we believe that the large scale and nature of oil wells in Alaska are such that project commitments that currently exist will most likely not be disrupted by short-term price volatility.
RML holds a 30% investment in Homestate Mortgage, LLC. • Northrim Building, LLC (“NBL”) is a wholly-owned subsidiary of the Bank that owns and operates the Company’s main office facility at 3111 C Street in Anchorage. • Northrim Building LO, LLC is a wholly-owned subsidiary of the Bank that owns and operates the Company’s community branch facility at 2270 E. 37th Avenue in Anchorage.
RML held a 30% investment in Homestate Mortgage, LLC until it dissolved in 2023. • Northrim Building, LLC (“NBL”) is a wholly-owned subsidiary of the Bank that owns and operates the Company’s main office facility at 3111 C Street in Anchorage. • Northrim Building LO, LLC is a wholly-owned subsidiary of the Bank that owns and operates the Company’s community branch facilities at 2270 E. 37th Avenue in Anchorage and 2491 Tongass Avenue in Ketchikan.
As of December 31, 2022, Alaska's Constitutional Budget Reserve was $1.1 billion and the Alaska Permanent Fund had a balance of $74.5 billion. Investment revenue generated by the Alaska Permanent Fund is also used to pay an annual dividend to every eligible Alaskan citizen.
As of December 31, 2023, Alaska's Constitutional Budget Reserve was $2.8 billion and the Alaska Permanent Fund had a balance of $77.4 billion. Investment revenue generated by the Alaska Permanent Fund is also used to pay an annual dividend to every eligible Alaskan citizen.
Additionally, approximately 38% of our loan portfolio at December 31, 2022 is attributable to 44 large borrowing relationships. Moreover, our business activities are 6 currently focused primarily in the state of Alaska.
Additionally, approximately 39% of our loan portfolio at December 31, 2023 is attributable to 50 large borrowing relationships. Moreover, our business activities are currently focused primarily in the state of Alaska.
The Company is also subject to the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”) and the Anti-Money Laundering Act of 2020 (the “AMLA”).
The Bank is also subject to the Bank Secrecy Act (the “BSA”) and other anti-money laundering laws and regulations including the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (the “USA PATRIOT Act”) and the Anti-Money Laundering Act of 2020 (the “AMLA”).
We believe this helps mitigate the effect that a decline in natural resource industries, specifically the oil industry, in Alaska would have on the Company's operations. Southeast Alaska is the primary destination for cruise ships that visit Alaska.
We believe our exposure to the tourism industry diversifies the Company's customer base in the long-term. We believe this helps mitigate the effect that a decline in natural resource industries, specifically the oil industry, in Alaska would have on the Company's operations. Southeast Alaska is the primary destination for cruise ships that visit Alaska.
Approximately 33% of the workforce identify as a member of a racial minority, 3% identify as individuals with a disability, and 1% identify as veterans. In executive and senior management positions, 43% identify as women and 57% as men as of December 31, 2022.
Approximately 34% of the workforce identify as a member of a racial minority, 3% identify as individuals with a disability, and 1% identify as veterans. In executive and senior management positions, 37% identify as women and 63% as men as of December 31, 2023.
Nonbank acquisitions and activities of a bank holding company are also generally limited to the acquisition of up to 5% of the outstanding shares of any class of voting securities of a company unless the FRB has previously determined that the nonbank activities are closely related to banking, or prior approval is obtained from the FRB. 10 The Gramm-Leach-Bliley Act (the “GLB Act”) also included extensive consumer privacy provisions.
Nonbank acquisitions and activities of a bank holding company are also generally limited to the acquisition of up to 5% of the outstanding shares of any class of voting securities of a company unless the FRB has previously determined that the nonbank activities are closely related to banking, or prior approval is obtained from the FRB.
For over 40 years, Alaska residents have received annual distributions payable in October of each year from the Alaska Permanent Fund Corporation, which is supported by royalties from oil production. The distribution was $3,284 per eligible resident in 2022 for an aggregate distribution of approximately $2.1 billion.
For over 40 years, Alaska residents have received annual distributions payable in October of each year from the Alaska Permanent Fund Corporation, which is supported by royalties from oil production and earnings from its investments. The distribution was $1,312 per eligible resident in 2023 for an aggregate distribution of approximately $819.2 million.
Several of our deposit services and products are: • A specialized business checking account customized to account activity; • A money market deposit account; • A “Jump-Up” certificate of deposit (“CD”) that allows additional deposits with the opportunity to increase the rate to the current market rate for a similar term CD; • A savings account that is priced like a money market account that allows additional deposits, quarterly withdrawals without penalty, and tailored maturity dates; • IntraFi® Network Deposits℠ and business sweep; • Consumer online banking, mobile app, and mobile deposit; • Business online banking, business mobile app, and business mobile deposit; and • Instantly issued debit cards for business and consumer accounts at account opening.
Our interest-bearing accounts generally earn interest at rates established by management based on competitive market factors and management’s desire to increase or decrease certain types or maturities of deposits. 5 Several of our deposit services and products are: • A specialized business checking account customized to account activity; • A money market deposit account; • A “Jump-Up” certificate of deposit (“CD”) that allows additional deposits with the opportunity to increase the rate to the current market rate for a similar term CD; • A savings account that is priced like a money market account that allows additional deposits, quarterly withdrawals without penalty, and tailored maturity dates; • IntraFi® Network Deposits℠ and business sweep; • Consumer online banking, mobile app, and mobile deposit; • Business online banking, business mobile app, and business mobile deposit; and • Instantly issued debit cards for business and consumer accounts at account opening.
Through our 18 banking branches and eight mortgage origination offices, we are accessible to approximately 90% of the Alaskan population. 2 The Company has three direct wholly-owned subsidiaries: • Northrim Bank (the “Bank”), a state chartered, full-service commercial bank headquartered in Anchorage, Alaska.
Northrim Bank and Residential Mortgage are easily accessible to approximately 90% of the Alaska's population through our geographically dispersed 19 branches and 12 mortgage origination offices. 2 The Company has three direct wholly-owned subsidiaries: • Northrim Bank (the “Bank”), a state chartered, full-service commercial bank headquartered in Anchorage, Alaska.
However, the guidelines allow the Company to opt in to the simplification in the future should our assessment change. In addition to the minimum capital standards, the federal banking agencies have issued regulations to implement a system of "prompt corrective action." These regulations apply to the Bank but not the Company.
In addition to the minimum capital standards, the federal banking agencies have issued regulations to implement a system of "prompt corrective action." These regulations apply to the Bank but not the Company.
(2) SNL Financial Deposit Market Share Summary as of June 30, 2022. Supervision and Regulation The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956 (the “BHC Act”) registered with and subject to examination by the Board of Governors of the Federal Reserve System (the “FRB”).
Supervision and Regulation The Company is a bank holding company within the meaning of the Bank Holding Company Act of 1956 (the “BHC Act”) registered with and subject to examination by the Board of Governors of the Federal Reserve System (the “FRB”).
The Credit Administration Department monitors the procedures and processes for both the analysis and reporting of problem loans, and also develops strategies to resolve problem loans based on the facts and circumstances for each loan.
Management has processes in place to analyze and manage various concentrations of credit within the overall loan portfolio. The Credit Administration Department monitors the procedures and processes for both the analysis and reporting of problem loans, and also develops strategies to resolve problem loans based on the facts and circumstances for each loan.
The Coronavirus Aid, Relief. and Economic Security ("CARES") Act established several new temporary U.S. Small Business Administration (“SBA”) loan programs to assist U.S. small businesses through the COVID-19 pandemic. One of the new loan programs is the PPP, an expansion of the SBA’s 7(a) loan program and the Economic Injury Disaster Loan Program.
The Coronavirus Aid, Relief. and Economic Security ("CARES") Act established several new temporary U.S. Small Business Administration (“SBA”) loan programs to assist U.S. small businesses through the COVID-19 pandemic.
The Company’s business strategy also stresses the importance of customer deposit relationships to support its lending activities. Our guiding principle is to serve our market areas by operating with a “Superior Customer First Service” philosophy, affording our customers the highest priority in all aspects of our operations.
Our guiding principle is to serve our market areas by operating with a “Superior Customer First Service” philosophy, affording our customers the highest priority in all aspects of our operations.
Consequently, our results of operations and financial condition are dependent upon the general trends in the Alaska economy and, in particular, the residential and commercial real estate markets in Anchorage, Juneau, Fairbanks, the Matanuska-Susitna Valley, Ketchikan, Sitka, and to a lesser extent, the Kenai Peninsula, Kodiak and Nome.
Consequently, our results of operations and financial condition are dependent upon the general trends in the Alaska economy and, in particular, the residential and commercial real estate markets in Anchorage, Juneau, Fairbanks, the Matanuska-Susitna Valley, the Kenai Peninsula, and to a lesser extent, Ketchikan, Sitka, Kodiak and Nome. 6 Home Mortgage Lending Lending Services: The Company originates 1-4 family residential mortgages, the majority of which are located in Alaska, most of which we sell to the secondary market.
Alaska Economy Our growth and operations are impacted by the economic conditions of Alaska and the specific markets we serve. Significant changes in the Alaska economy and the markets we serve eventually could have a positive or negative impact on the Company.
Significant changes in the Alaska economy and the markets we serve eventually could have a positive or negative impact on the Company.
Part of the POMV concept creates an allocation of a portion of investment earnings to unrestricted revenue instead of restricted revenue. According to the State of Alaska Department of Revenue, in 2022 and 2021, investment earnings represented $3.0 million, or 43%, and $3.1 million, or 65%, respectively, of unrestricted revenues.
Part of the POMV concept creates an allocation of a portion of investment earnings to unrestricted revenue instead of restricted revenue. According to the DOR, in 2023 and 2022, investment earnings allocated from the Alaska Permanent Fund under the POMV represented $3.5 billion, or 49%, and $3.0 billion, or 43%, respectively, of unrestricted State revenues.
We estimate that credit unions in Alaska have a 43% share of total deposits held in banks and credit unions in the state as of June 30, 2022. Changes in credit union operating practices have effectively eliminated the “common bond” of membership requirement and liberalized their lending authority to include business and real estate loans on par with commercial banks.
Changes in credit union operating practices have effectively eliminated the “common bond” of membership requirement and liberalized their lending authority to include business and real estate loans on par with commercial banks.
The Company is also subject to the information, proxy solicitation, insider trading restrictions and other requirements of the Securities Exchange Act of 1934, as amended (the “Securities Exchange Act of 1934”), including certain requirements under the Sarbanes-Oxley Act of 2002. 14 Available Information The Company’s annual report on Form 10-K and quarterly reports on Form 10-Q, as well as its current reports on Form 8-K and proxy statement filings (and all amendments thereto), which are filed with the SEC, are accessible free of charge at our website at http://www.northrim.com as soon as reasonably practicable after filing with the SEC.
Available Information The Company’s annual report on Form 10-K and quarterly reports on Form 10-Q, as well as its current reports on Form 8-K and proxy statement filings (and all amendments thereto), which are filed with the SEC, are accessible free of charge at our website at http://www.northrim.com as soon as reasonably practicable after filing with the SEC.
Of the 469 full-time equivalent employees, 336 were Community Banking employees and 133 were Home Mortgage Lending employees. Among the Company's full-time equivalent employees as of December 31, 2022, 69% identify as women and 31% as men.
Of the 472 full-time equivalent employees, 332 were Community Banking employees and 140 were Home Mortgage Lending employees. 4 Among the Company's full-time equivalent employees as of December 31, 2023, 66% identify as women and 34% as men.
Finally, our Internal Audit Department also performs an independent review of each loan portfolio for compliance with 5 loan policy, as well as a review of credit quality. The Internal Audit review follows the FDIC sampling guidelines and a review of each portfolio is performed on an annual basis.
Additionally, the Credit Administration Department performs a review of the loan portfolio for compliance with loan policy, as well as a review of credit quality. Loan review follows the FDIC sampling guidelines on an annual basis. Finally, our Internal Audit independently reviews loans for regulatory compliance and conformance to the Bank's policies and procedures.
(“NCIC”) is a wholly-owned subsidiary of the Bank, which holds a 100% interest in a residential mortgage holding company, Residential Mortgage Holding Company, LLC, the parent company of Residential Mortgage, LLC (collectively “RML”). RML became a wholly-owned subsidiary of NCIC on December 1, 2014. Prior to that, the Company held a 23.5% interest in RML.
(“NCIC”) is a wholly-owned subsidiary of the Bank, which holds a 100% interest in a residential mortgage holding company, Residential Mortgage Holding Company, LLC, the parent company of Residential Mortgage, LLC (collectively “RML”).
Generally, the policies address our desired loan types, target markets, underwriting and collateral requirements, terms, interest rate and yield considerations, and compliance with laws and regulations. The policies are reviewed and approved annually by the board of directors of the Bank. Management has processes in place to analyze and manage various concentrations of credit within the overall loan portfolio.
Our loan policies outline the basic policies and procedures by which lending operations are conducted. Generally, the policies address our desired loan types, target markets, underwriting and collateral requirements, terms, interest rate and yield considerations, and compliance with laws and regulations. The policies are reviewed and approved annually by the board of directors of the Bank.
The Company’s affiliated trust company, Pacific Portfolio Trust Company, is regulated as a non-depository trust company under the trust company laws of the State of Washington and is subject to supervision and examination by the Washington State Department of Financial Institutions.
The Company’s affiliated trust company, Pacific Portfolio Trust Company, is regulated as a non-depository trust company under the trust company laws of the State of Washington and is subject to supervision and examination by the Washington State Department of Financial Institutions. 9 The Company’s earnings and activities are affected, among other things, by legislation, by actions of the FRB, the Division, the FDIC and other regulators, by local legislative and administrative bodies, and decisions of courts.
We estimate that as of December 31, 2022 the Company had $126.5 million, or 8% of total loans, in the healthcare sector, $96.3 million, or 6% of portfolio loans, in the tourism sector, $83.4 million, or 6%, in the oil and gas sector, $70.8 million, or 5% of total loans in the fishing sector, $65.1 million, or 4% in the accommodations sector, $50.8 million, or 3% of portfolio loans, in the aviation (non-tourism) sector, $54.8 million, or 4%, in retail loans, and $46.9 million, or 3% in the restaurants and breweries sector.
We estimate that as of December 31, 2023 the Company had $123.3 million, or 7% of total portfolio loans, in the Healthcare sector; $100.4 million, or 6% of portfolio loans, in the Tourism sector; $84.2 million, or 5% in the Accommodations sector; $75.0 million, or 4% in the Fishing sector; $72.8 million, or 4% in Retail loans; $63.4 million, or 4% of portfolio loans, in the Aviation (non-tourism) sector; and $52.2 million, or 3% in the Restaurants and Breweries sector.
Financial institutions are expected to comply with such guidance and standards and to accordingly develop appropriate security controls and risk management processes. If we fail to observe such regulatory guidance or standards, we could be subject to various regulatory sanctions, including financial penalties.
If we fail to observe such regulatory guidance or standards, we could be subject to various regulatory sanctions, including financial penalties.
The number of units sold in the Matanuska Susitna Borough had been increasing for the prior four years and grew by 11.7% in 2021. A material portion of our loans at December 31, 2022, were secured by real estate located in greater Anchorage, Matanuska-Susitna Valley, Fairbanks, and Southeast Alaska.
In the Matanuska Susitna Borough there were 1,632 homes sold in 2023, compared to 2,103 in 2022, a decrease of 22.4%. 7 A material portion of our loans at December 31, 2023, were secured by real estate located in greater Anchorage, Matanuska-Susitna Valley, Fairbanks, and Southeast Alaska.
Based on the latest information from Rain Coast Data, approximately one million cruise ship tourists have visited Southeast Alaska annually in recent years, except in 2020 when there were no cruise visitors and in 2021 when there were roughly 116,000 cruise visitors according to State of Alaska Department of Labor and Workforce Development ("SOADLWD").
Based on the latest information from Rain Coast Data, approximately one million cruise ship tourists have visited Southeast Alaska annually in recent years, including 1.2 million in 2022, except in 2020 and 2021 due to the COVID-19 pandemic.
Alaska’s Gross State Product (“GSP”) in the third quarter of 2022, was estimated to be $65.1 billion in “nominal” terms, according to the Federal Bureau of Economic Analysis ("BEA"). Alaska’s inflation adjusted “real” GSP grew at an annualized rate of 8.7% in the third quarter of 2022 in the BEA’s most recent report published December 23, 2022.
Alaska’s Gross State Product (“GSP”) in the third quarter of 2023, was estimated to be $67.7 billion in current dollars, according to the Federal Bureau of Economic Analysis ("BEA"). Alaska’s inflation adjusted “real” GSP grew 3.6% at annualized rates in the third quarter of 2023, compared to the average U.S. rate of 4.9%.
In March 2022, the Securities and Exchange Commission (“SEC”) published proposed rules relating to risk management, strategy, governance and incident disclosure which would be applicable to public companies in preparing disclosures about cybersecurity risks and incidents.
In July 2023, the Securities and Exchange Commission (“SEC”) published adopted final rules relating to risk management, strategy, governance and incident disclosure which are applicable to public companies in preparing disclosures about cybersecurity risks and incidents. These SEC rules, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations.
We have devoted significant resources to future deposit product development, expansion of electronic services for both personal and business customers, and enhancement of the Company's information security related to providing these services. In addition to market share growth, a significant aspect of the Company’s business strategy is focused on managing the credit quality of our loan portfolio.
In addition to market share growth, a significant aspect of the Company’s business strategy is focused on managing the credit quality of our loan portfolio.
We believe that there is 3 opportunity to increase the Company’s loan portfolio, particularly in the commercial portion of the portfolio, in the Company’s current market areas through existing and new customers. We have targeted the acquisition of new customers in professional fields including physicians, dentists, accountants, and attorneys.
We believe that there is opportunity to increase the Company’s loan portfolio, particularly in the commercial portion of the portfolio, in the Company’s 3 current market areas through existing and new customers. In addition to lending products, in many cases commercial customers also require multiple deposit and affiliated services that add franchise value to the Company.
Key sectors of the Alaska economy are the oil industry, government and military spending, and the fishing, mining, tourism, air cargo, transportation, and construction industries, as well as health services. Recent Economic Developments The Alaska economy continued to recover in 2022 from the effects of the COVID pandemic. Jobs steadily increased throughout the year and unemployment remains low.
Key sectors of the Alaska economy are the oil industry, government and military spending, and the fishing, mining, tourism, air cargo, transportation, and construction industries, as well as health services. Recent Economic Developments The Alaska Department of Labor ("DOL") has reported Alaska’s seasonally adjusted unemployment rate in November of 2023 was 4.4% compared to the U.S. rate of 3.7%.
In addition to lending products, in many cases commercial customers also require multiple deposit and affiliated services that add franchise value to the Company. We believe that these strategies will continue to benefit the Company in 2023, and we intend to continue to grow our balance sheet through increasing our market share.
We believe that these strategies will continue to benefit the Company in 2024, and we intend to continue to grow our balance sheet through increasing our market share. The Company’s business strategy also stresses the importance of customer deposit relationships to support its lending activities.
These SEC proposed rules, and any other regulatory guidance, are in addition to notification and disclosure requirements under state and federal banking law and regulations. The federal banking regulators regularly issue new guidance and standards, and update existing guidance and standards, regarding cybersecurity intended to enhance cyber risk management among financial institutions.
The federal banking regulators regularly issue new guidance and standards, and update existing guidance and standards, regarding cybersecurity intended to enhance cyber risk management among financial institutions. Financial institutions are expected to comply with such guidance and standards and to accordingly develop appropriate security controls 13 and risk management processes.
The DOR calculated ANS crude oil production was 486 thousand barrels per day in Alaska’s fiscal year, ending June 30, 2022. They forecast production to increase to 501 thousand barrels per day in Alaska’s fiscal year 2023 and 512 thousand barrels per day in 2024.
The Alaska Department of Revenue (“DOR”) calculated ANS crude oil production was 479 thousand barrels per day (“bpd”) in Alaska’s fiscal year ending June 30, 2023. The DOR has forecast production to decline slightly to 470 thousand bpd in Alaska’s fiscal year 2024. That number is projected to grow by the DOR to 663 thousand bpd by fiscal year 2033.
Financial institution Number of branches Total deposits (in thousands) Market share of total financial institution deposits Market share of total bank deposits Northrim Bank (1) 17 $2,361,055 8 % 14.0 % Wells Fargo Bank Alaska (1) 39 7,536,026 26 % 44.5 % First National Bank Alaska (1) 27 4,161,642 14 % 24.6 % Key Bank (1) 11 1,184,196 4 % 7.0 % First Bank (1) 9 709,329 2 % 4.2 % Mt.
Financial institution Number of branches Total deposits (in thousands) Market share of total bank deposits Northrim Bank (1) 19 $2,328,743 15.0 % Wells Fargo Bank Alaska (1) 38 6,482,757 41.9 % First National Bank Alaska (1) 27 3,874,988 25.0 % Key Bank (1) 10 1,116,909 7.2 % First Bank (1) 9 741,643 4.8 % Mt.
In its most recent CRA examination, the Bank received a “Satisfactory” rating from the FDIC.
In its most recent CRA examination, the Bank received a “Satisfactory” rating from the FDIC. On October 24, 2023, the FDIC, the Office of the Comptroller of the Currency (“OCC”), and the FRB jointly issued a final rule to strengthen and modernize the existing CRA regulations.
This is primarily a result of new production coming on line in the NPR-A region west of Prudhoe Bay. 7 According to the Mortgage Bankers Association, Alaska’s home mortgage delinquency rate at the end of 2022 was 2.9%. This is identical to the rate in Alaska at the end of 2019.
This is primarily a result of new production coming on line in and around the NPR-A region west of Prudhoe Bay. According to the Alaska Multiple Listing Services, the average sales price of a single family home in Anchorage rose 5.4% in 2023 to $481,181, following a 7.6% increase in 2022. This was the sixth consecutive year of price increases.
McKinley Bank (1) 5 548,045 2 % 3.2 % Denali State Bank (1) 5 420,098 1 % 2.5 % Total bank branches 113 $16,920,391 57 % 100 % Credit unions (2) 86 $12,659,034 43 % NA Total financial institution branches 199 $29,579,425 100 % 100 % (1) FDIC Summary of Deposits as of June 30, 2022.
McKinley Bank (1) 5 521,186 3.4 % Denali State Bank (1) 5 420,906 2.7 % Total bank branches 113 $15,487,132 100 % (1) FDIC Summary of Deposits as of June 30, 2023.
The BEA also calculated Alaska’s seasonally adjusted personal income at $51 billion in the third quarter of 2022, an improvement of 5.8% over the prior quarter on an annualized basis. The national average was an increase of 5.3% for the same period .
Alaska’s real GSP improvement in the third quarter of 2023 was aided by gains in the Transportation & Warehousing and Construction sectors. The BEA also calculated Alaska’s seasonally adjusted personal income at $52.3 billion in the third quarter of 2023.
These declines were due to the COVID-19 pandemic. The SOADLWD reported in its January 2023 issue of Alaska Economic Trends Magazine that the cruise industry brought 1.2 million cruise ship visitors to Alaska in 2022, and this total is expected to increase in 2023. Alaska’s residents are not subject to any state income or state sales taxes.
On December 29, 2023 the Juneau Empire reported that 1.65 million cruise ship passengers visited Alaska in 2023, and the totals for 2024 and 2025 are expected to be similar to 2023. Alaska’s residents are not subject to any state income or state sales taxes.
This was the fifth consecutive year of price increases, following growth of 6.9% in 2021 and 5.8% in 2020. Average sales prices in the Matanuska Susitna Borough rose 10% in 2022 to $382,528, continuing a trend of average price increases for more than a decade.
Average sales prices for single family homes in the Matanuska Susitna Borough rose 4% in 2023 to $397,858, after increasing 9.9% in 2022. This continues a trend of average price increases for more than a decade in the region. These two markets represent where the vast majority of the Bank’s residential lending activity occurs.
Removed
The American Rescue Plan Act of 2021 ("ARP Act") provided additional funding for the PPP.
Added
We have devoted significant resources to our treasury management products, including a corporate purchasing card and integrated payables, as well as expansion of electronic services for both personal and business customers, and enhancement of the Company's information security related to providing these services.
Removed
PPP provides loans to small businesses who were affected by economic conditions as a result of COVID-19 to provide cash-flow assistance to employers who maintain their payroll (including healthcare and certain related expenses), mortgage interest, rent, leases, utilities and interest on existing debt during this emergency.
Added
PPP provided loans to small businesses who were affected by economic conditions as a result of COVID-19 and included loan forgiveness of all or a portion of the loan, subject to certain eligibility requirements and conditions. Our lending operations are guided by loan policies, approval procedures, and amount limitations.
Removed
Eligible borrowers need to make a good faith certification that the uncertainty of current economic conditions make requesting assistance necessary to support ongoing operations. Pursuant to the provisions of Section 1106 of the CARES Act, borrowers may apply to the Bank for loan forgiveness of all or a portion of the loan, subject to certain eligibility requirements and conditions.
Added
The Company has $465.4 million non-owner occupied commercial real estate loans as of December 31, 2023 of which 17% are office class A or B, 14% are office / warehouse, 14% are retail centers, 10% are hotels, 10% are apartments, 8% are mini warehouse and self-storage, 7% are warehouse, and 20% are other.
Removed
As of December 31, 2022, $606.9 million or 99% of the PPP loans that the Company originated under the program have been forgiven. Our lending operations are guided by loan policies, approval procedures, and amount limitations. Our loan policies outline the basic policies and procedures by which lending operations are conducted.
Added
The Company also originates loans funded for investment, including adjustable rate mortgages, a second home product, jumbo loans, and extended locks which are retained as consumer loans in the Company's loan portfolio. Alaska Economy Our growth and operations are impacted by the economic conditions of Alaska and the specific markets we serve.
Removed
Our interest-bearing accounts generally earn interest at rates established by management based on competitive market factors and management’s desire to increase or decrease certain types or maturities of deposits.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeOperational, Strategic and Business Risk Factors • Current economic conditions in the State of Alaska pose challenges for us and could adversely affect our financial condition and results of operations. • Our concentration of operations in the Anchorage, Matanuska-Susitna Valley, Fairbanks and Southeast areas of Alaska makes us more sensitive to downturns in those areas. • Our allowance for credit losses may be insufficient. • Residential mortgage lending is a market sector that experiences significant volatility and is influenced by many factors beyond our control. • Our information systems or those of our third-party vendors may be subject to an interruption or breach in security, including as a result of cyber-attacks. • A failure in or breach of the Company's operational systems, information systems, or infrastructure, or those of the Company's third-party vendors and other service providers, may result in financial losses, or loss of customers. • Our business is highly reliant on third party vendors. • We continually encounter technological change, and we may have fewer resources than many of our competitors to continue to invest in technological improvements. • Our business, financial condition and results of operations are subject to risk from changes in customer behavior. • If we do not comply with the agreements governing servicing of loans, if these agreements change materially, or if others allege non-compliance, our business and results of operations may be harmed. • Certain hedging strategies that we use to manage interest rate risk may be ineffective to offset any adverse changes in the fair value of these assets due to changes in interest rates and market liquidity. 15 • We have a significant concentration in real estate lending.
Biggest changeOperational, Strategic and Business Risk Factors • Changes and instability in economic conditions, geopolitical matters and financial markets, including contraction of economic activity, could adversely impact our business, results of operations and financial condition. • Current economic conditions in the State of Alaska pose challenges for us and could adversely affect our financial condition and results of operations. • Our concentration of operations in the Anchorage, Matanuska-Susitna Valley, Fairbanks and Southeast areas of Alaska makes us more sensitive to downturns in those areas. • Our allowance for credit losses may be insufficient. • We are subject to lending concentration risks. • Our commercial real estate lending may expose us to increased lending risks. • Residential mortgage lending is a market sector that experiences significant volatility and is influenced by many factors beyond our control. • Our information systems or those of our third-party vendors may be subject to an interruption or breach in security, including as a result of cyber-attacks. • A failure in or breach of the Company's operational systems, information systems, or infrastructure, or those of the Company's third party vendors and other service providers, may result in financial losses, or loss of customers. • Our business is highly reliant on third party vendors. • We continually encounter technological change, and we may have fewer resources than many of our competitors to continue to invest in technological improvements. • Our business, financial condition and results of operations are subject to risk from changes in customer behavior. • Consumers may decide not to use banks to complete their financial transactions. • If we do not comply with the agreements governing servicing of loans, if these agreements change materially, or if others allege non-compliance, our business and results of operations may be harmed. • Certain hedging strategies that we use to manage interest rate risk may be ineffective to offset any adverse changes in the fair value of these assets due to changes in interest rates and market liquidity. • We may be unable to attract and retain key employees and personnel. • Our internal controls may be ineffective. • Liquidity risk could impair our ability to fund operations and jeopardize our financial conditions. • A failure of a significant number of our borrowers, guarantors and related parties to perform in accordance with the terms of their loans would have an adverse impact on our results of operations.
We may also face the following risks in connection with events: ▪ Ineffective monetary policy could cause rapid changes in interest rates and asset values that would have a materially adverse impact on our profitability and overall financial condition. ▪ Market developments and economic stagnation may affect consumer confidence levels and may cause adverse changes in payment patterns, resulting in increased delinquencies and default rates on loans and other credit facilities. ▪ Regulatory scrutiny of the industry could increase, leading to harsh regulation of our industry that could lead to a higher cost of compliance, limit our ability to pursue business opportunities and increase our exposure to litigation. ▪ Further erosion in the fiscal condition of the U.S.
We may also face the following risks in connection with events: 18 ▪ Ineffective monetary policy could cause rapid changes in interest rates and asset values that would have a materially adverse impact on our profitability and overall financial condition. ▪ Market developments and economic stagnation may affect consumer confidence levels and may cause adverse changes in payment patterns, resulting in increased delinquencies and default rates on loans and other credit facilities. ▪ Regulatory scrutiny of the industry could increase, leading to harsh regulation of our industry that could lead to a higher cost of compliance, limit our ability to pursue business opportunities and increase our exposure to litigation. ▪ Further erosion in the fiscal condition of the U.S.
Severe weather events of increasing strength and frequency due to climate change cannot be predicted and may be exacerbated by global climate change, natural disasters, including volcanic eruptions and earthquakes, and other adverse external events could have a significant impact on our ability to conduct business or upon third parties who perform operational services for us.
Severe weather events of increasing strength and frequency due to climate change cannot be predicted and may be exacerbated by global climate change, natural disasters, including volcanic eruptions and earthquakes, and other adverse 30 external events could have a significant impact on our ability to conduct business or upon third parties who perform operational services for us.
The loss of these vendor relationships, or a failure of these vendors' systems, could disrupt the services we provide to our customers and cause us to incur significant expense in connection with replacing these services. We continually encounter technological change, and we may have fewer resources than many of our competitors to continue to invest in technological improvements.
The loss of these vendor relationships, or a failure of these vendors' systems, could disrupt the services we provide to our customers and cause us to incur significant expense in connection with replacing these services. 21 We continually encounter technological change, and we may have fewer resources than many of our competitors to continue to invest in technological improvements.
Our business operations could also suffer to the extent the Bank cannot utilize its branch network due to a natural disaster or other weather-related damage. The soundness of other financial institutions could adversely affect us. Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions.
Our business operations could also suffer to the extent the Bank cannot utilize its branch network due to a natural disaster or other weather-related damage. 29 The soundness of other financial institutions could adversely affect us. Our ability to engage in routine funding transactions could be adversely affected by the actions and commercial soundness of other financial institutions.
This would result in an increase in our non-performing assets if more borrowers fail to perform according to loan terms and if we take possession of real estate properties. Additionally, if real estate values decline, the value of real estate collateral securing our loans could be significantly reduced.
This would result in an increase in our non-performing assets if more borrowers fail to perform according to loan terms and if we take possession of real estate properties. Additionally, if real estate values decline, the value of real estate collateral securing 19 our loans could be significantly reduced.
The FDIC may increase the assessment rates or impose additional special assessments in the future to restore and then steadily increase the DIF to these statutory target levels. Any increase in the Bank's FDIC premiums could have an adverse effect on its business, financial condition and results of operations.
The FDIC may continue to increase the assessment rates or impose additional special assessments in the future to restore and then steadily increase the DIF to these statutory target levels. Any increase in the Bank's FDIC premiums could have an adverse effect on its business, financial condition and results of operations.
Zins in the amounts of $2.4 million, $2 million, $2 million and $2 million, respectively, we may not be able to timely replace these key employees with a person of comparable ability and experience 21 should the need to do so arise, causing losses in excess of the insurance proceeds.
Zins in the amounts of $2.4 million, $2 million, $2 million and $2 million, respectively, we may not be able to timely replace these key employees with a person of comparable ability and experience should the need to do so arise, causing losses in excess of the insurance proceeds.
The perceived uncertainty as to the Company’s future direction resulting from activist strategies could also affect the market price and volatility of the Company’s common stock. 26 General Risk Factors Natural disasters and adverse weather could negatively affect real estate property values and Bank operations.
The perceived uncertainty as to the Company’s future direction resulting from activist strategies could also affect the market price and volatility of the Company’s common stock. General Risk Factors Natural disasters and adverse weather could negatively affect real estate property values and Bank operations.
The effect and duration of demonstrations, protests, or other factors is uncertain, and we cannot ensure there will not be further political or social unrest in the future or that there will not be other events that could lead to social, political, and economic 27 disruptions.
The effect and duration of demonstrations, protests, or other factors is uncertain, and we cannot ensure there will not be further political or social unrest in the future or that there will not be other events that could lead to social, political, and economic disruptions.
We will be dependent for the foreseeable future on the services of Joseph M. Schierhorn, our Chairman of the Board, President, Chief Executive Officer, and Chief Operating Officer of the Company; Michael Huston, our President and Chief Lending Officer of Northrim Bank; Jed W.
We will be dependent for the foreseeable future on the services of Joseph M. Schierhorn, our Chairman of the Board, President, Chief Executive Officer, and Chief Operating Officer of the Company; Michael Huston, our President of Northrim Bank; Jed W.
Some additional factors that may cause the price of our common stock to fluctuate include: •general conditions in the financial markets and real estate markets. •macro-economic and political conditions in the U.
Some additional factors that may cause the price of our common stock to fluctuate include: •general conditions in the financial markets and real estate markets. 28 •macro-economic and political conditions in the U.
The pervasiveness of cyber security incidents in general and the risks of cyber-crime are complex and continue to evolve. In addition, due to COVID-19, we have modified our business practices with a portion of our employees working remotely from their homes. The continuation of these work-from-home measures also introduces additional operational risk, including increased cybersecurity risk.
The pervasiveness of cyber security incidents in general and the risks of cyber-crime are complex and continue to evolve. In addition, following COVID-19, we have modified our business practices with a portion of our employees working remotely from their homes. The continuation of these work-from-home measures also introduces additional operational risk, including increased cybersecurity risk.
Our business may be adversely affected by social, political, and economic instability, unrest, or disruption in a geographic region in which we operate, regardless of cause, including legal, regulatory, and policy changes by a new presidential administration in the U.S., protests, demonstrations, strikes, riots, civil disturbance, disobedience, insurrection, or social and other political unrest.
Our business may be adversely affected by social, political, and economic instability, unrest, or disruption in a geographic region in which we operate, regardless of cause, including legal, regulatory, and policy changes by the current presidential administration in the U.S., protests, demonstrations, strikes, riots, civil disturbance, disobedience, insurrection, or social and other political unrest.
Our concentration of operations in the Anchorage, Matanuska-Susitna Valley, Fairbanks and Southeast areas of Alaska makes us more sensitive to downturns in those areas. Substantially all of our business is derived from the Anchorage, Matanuska-Susitna Valley, Fairbanks, and Southeast areas of Alaska. The majority of our lending has been with Alaska businesses and individuals.
Our concentration of operations in the Anchorage, Matanuska-Susitna Valley, Fairbanks and Southeast areas of Alaska makes us more sensitive to downturns in those areas. Substantially all of our business is derived from the Anchorage, Matanuska-Susitna Valley, Fairbanks, Southeast, and Kenai Peninsula areas of Alaska. The majority of our lending has been with Alaska businesses and individuals.
Deteriorating conditions in the regional economies of Anchorage, Matanuska-Susitna Valley, Fairbanks, and the Southeast areas of Alaska served by the Company could drive losses beyond that which is provided for in our allowance for loan losses.
Deteriorating conditions in the regional economies of Anchorage, Matanuska-Susitna Valley, Fairbanks, and the Southeast areas of Alaska served by the Company could drive losses beyond that which is provided for in our allowance for credit losses.
S. and the financial markets generally (including the effects of the COVID-19 pandemic). •variations in the operating results of the Company and our competitors. •events affecting other companies that the market deems comparable to the Company. •changes in securities analysts' estimates of our future performance and the future performance of our competitors. •announcements by the Company or our competitors of mergers, acquisitions and strategic partnerships. •additions or departure of key personnel. •the presence or absence of short selling of our common stock. •future sales or other issuances by us of our common stock.
S. and the financial markets generally. •variations in the operating results of the Company and our competitors. •events affecting other companies that the market deems comparable to the Company. •changes in securities analysts' estimates of our future performance and the future performance of our competitors. •announcements by the Company or our competitors of mergers, acquisitions and strategic partnerships. •additions or departure of key personnel. •the presence or absence of short selling of our common stock. •future sales or other issuances by us of our common stock.
Continuing deterioration in economic conditions affecting borrowers and securities issuers; new information regarding existing loans, credit commitments and securities holdings; the continuation of the COVID-19 pandemic or other global pandemics; natural disasters and risks related 18 to climate change; and identification of additional problem loans, ratings down-grades and other factors, both within and outside of our control, may require an increase in the allowances for credit losses on loans, securities and off-balance sheet credit exposures.
Continuing deterioration in economic conditions affecting borrowers and securities issuers; new information regarding existing loans, credit commitments and securities holdings; natural disasters and risks related to climate change; and identification of additional problem loans, ratings down-grades and other factors, both within and outside of our control, may require an increase in the allowances for credit losses on loans, securities and off-balance sheet credit exposures.
Any increase in the allowance for credit losses on loans, securities and/or off-balance sheet credit exposures will result in a decrease in net income and, possibly, capital, and may have a material adverse effect on our business, financial condition and results of operations.
Any increase in the allowance for credit losses on loans, securities and/or off-balance sheet credit exposures will result in a decrease in net income and, possibly, capital, and may have a material adverse effect on our business, financial condition and results of operations. We are subject to concentration risks.
On January 27, 2023, the Company announced that its Board of Directors had authorized the repurchase of up to an additional 285,000 shares of common stock. Whether we continue, and the amount and timing of such stock repurchases is subject to capital availability and periodic determinations by our Board.
On January 26, 2024, the Company announced that its Board of Directors had authorized the repurchase of up to an additional 110,000 shares of common stock. Whether we continue, and the amount and timing of such stock repurchases is subject to capital availability and periodic determinations by our Board.
Although management has established disaster recovery policies and procedures, there can be no assurance of the effectiveness of such policies and procedures, and the occurrence of any such event could have a material adverse effect on our business, financial condition and results of operations. ITEM 1B. UNRESOLVED STAFF COMMENTS None. 28
Although management has established disaster recovery policies and procedures, there can be no assurance of the effectiveness of such policies and procedures, and the occurrence of any such event could have a material adverse effect on our business, financial condition and results of operations.
A deterioration in economic conditions in the United States and our regional markets could result in an increase in loan delinquencies and non-performing assets, decreases in loan collateral values and a decrease in demand for our products and services, all of which, in turn, would adversely affect our business, financial condition and results of operations. 17 Operational, Strategic and Business Risks Current economic conditions in the State of Alaska pose challenges for us and could adversely affect our financial condition and results of operations.
A deterioration in economic conditions in the United States and our regional markets could result in an increase in loan delinquencies and non-performing assets, decreases in loan collateral values and a decrease in demand for our products and services, all of which, in turn, would adversely affect our business, financial condition and results of operations.
The actual amount and timing of future share repurchases, if any, will depend on market and economic conditions, applicable SEC 25 rules, federal and state regulatory restrictions, and various other factors.
The actual amount and timing of future share repurchases, if any, will depend on market and economic conditions, applicable SEC rules, federal and state regulatory restrictions, and various other factors, including the recently implemented 1% excise tax on repurchases of stock.
General Risk Factors • Natural disasters and adverse weather could negatively affect real estate property values and Bank operations. • The soundness of other financial institutions could adversely affect us. • The financial services business is intensely competitive and our success will depend on our ability to compete effectively. • We are a community bank and our ability to maintain our reputation is critical to the success of our business and the failure to do so could materially adversely affect our performance. • Social, political, and economic instability, unrest, and other circumstances beyond our control could adversely affect our business operations. • Climate change, severe weather, natural disasters, and other external events could significantly impact our business. 16 We attempt to mitigate the foregoing risks.
General Risk Factors • Natural disasters and adverse weather could negatively affect real estate property values and Bank operations. • The soundness of other financial institutions could adversely affect us. • The financial services business is intensely competitive and our success will depend on our ability to compete effectively. • We are a community bank and our ability to maintain our reputation is critical to the success of our business and the failure to do so could materially adversely affect our performance. • Social, political, and economic instability, unrest, and other circumstances beyond our control could adversely affect our business operations. • Climate change, severe weather, natural disasters, and other external events could significantly impact our business. • Increasing, complex and evolving regulatory, stakeholder, and other third party expectations on ESG matters could adversely affect our reputation, our access to capital and the market price of our securities.
If any of these effects continue or become more pronounced, loan losses will increase more than we expect and our financial condition and results of operations would be adversely impacted. Further, approximately 55% of the Bank’s loan portfolio at December 31, 2022 consisted of commercial real estate loans.
If any of these effects continue or become more pronounced, loan losses will increase more than we expect and our financial condition and results of operations would be adversely impacted. Our commercial real estate lending may expose us to increased lending risks. Approximately 49% of the Bank’s loan portfolio at December 31, 2023 consisted of commercial real estate loans.
There can be no assurance that the Company will continue to repurchase stock. During 2022, the Company repurchased 333,724 shares of common stock at an average price of $42.42 per share under its previously announced share repurchase program.
There can be no assurance that the Company will continue to repurchase stock. During 2023, the Company repurchased 208,673 shares of common stock at an average price of $43.34 per share under its previously announced share repurchase program.
However, if we are unable to effectively manage the impact of these and other risks, our financial condition, results of operations, our ability to make distributions to our shareholders, or the market price of our common stock could be materially impacted. Interest Rate and Inflation Risks Changes in market interest rates could adversely impact the Company.
We attempt to mitigate the foregoing risks. However, if we are unable to effectively manage the impact of these and other risks, our financial condition, results of operations, our ability to make distributions to our shareholders, or the market price of our common stock could be materially impacted.
Our earnings and cash flows are largely dependent upon our net interest income. Net interest income is the difference between interest income earned on interest-earning assets such as loans and securities and interest expense paid on interest-bearing liabilities such as deposits and borrowed funds.
Interest Rate and Inflation Risks Changes in market interest rates could adversely impact the Company. Our earnings and cash flows are largely dependent upon our net interest income. Net interest income is the difference between interest income earned on interest-earning assets such as loans and securities and interest expense paid on interest-bearing liabilities such as deposits and borrowed funds.
Similarly, our accounting policies and methods are fundamental to how we report our financial condition and results of operations. Some of these policies require the use of estimates and assumptions that may affect the value of our assets, liabilities, and financial results.
Changes in our accounting policies or in accounting standards could materially affect how we report our financial results. Our accounting policies are fundamental to understanding our financial results and condition. Some of these policies require the use of estimates and assumptions that may affect the value of our assets or liabilities and financial results.
If these assumptions and projections prove to be incorrect or our hedging strategies do not adequately mitigate the impact of changes in interest rates, we may incur losses that would adversely impact our financial condition and results of operations. We have a significant concentration in real estate lending.
If these assumptions and projections prove to be incorrect or our hedging strategies do not adequately mitigate the impact of changes in interest rates, we may incur losses that would adversely impact our financial condition and results of operations. We may be unable to attract and retain key employees and personnel.
The credit quality of these loans may deteriorate more than expected which may result in losses that exceed the estimates that are currently included in our loan loss allowance, which could adversely affect our financial condition and results of operations. We may be unable to attract and retain key employees and personnel.
The credit quality of these loans may also deteriorate more than expected which may result in losses that exceed the estimates that are currently included in our allowance for loan losses, which could adversely affect our financial condition and results of operations.
Our hedging strategies are susceptible to prepayment risk, basis risk, market volatility and changes in the shape of the yield curve, among other factors. In addition, hedging strategies rely on assumptions and projections regarding assets and general market factors.
We use derivative instruments to economically hedge the interest rate risk in our residential mortgage loan commitments. Our hedging strategies are susceptible to prepayment risk, basis risk, market volatility and changes in the shape of the yield curve, among other factors. In addition, hedging strategies rely on assumptions and projections regarding assets and general market factors.
A decrease in consumer confidence levels would likely 20 aggravate the adverse effects of these difficult market conditions on us, our customers and adversely affect our future loan origination volume and margins.
A decrease in consumer confidence levels would likely aggravate the adverse effects of these difficult market conditions on us, our customers and adversely affect our future loan origination volume and margins. Consumers may decide not to use banks to complete their financial transactions.
Risk Factors Summary An investment in the Company's common stock is subject to risks inherent to the Company's business. Such risks, including those set forth in the summary of material risks in this Part I. Item 1A. should be carefully considered before purchasing our securities.
Such risks, including those set forth in the summary of material risks in this Part I. Item 1A. should be carefully considered before purchasing our securities.
We expect to see additional volatility in the financial markets due to the uncertainty caused by the continuing COVID-19 pandemic, disruption in global supply chains, uncertainty over the U.S. government debt ceiling and changing FRB policy.
We expect to see additional volatility in the financial markets due to the uncertainty caused by recent high-profile bank failures involving Silicon Valley Bank, Signature Bank and First Republic Bank, disruption in global supply chains, uncertainty over the U.S. government debt ceiling and changing FRB policy.
Consequently, an adverse development with respect to one commercial loan or one credit relationship exposes us to significantly greater risk of loss compared to an adverse development with respect to a consumer loan.
Commercial construction and commercial real estate loans typically involve larger loan balances to single borrowers or groups of related borrowers. Consequently, an adverse development with respect to one commercial loan or one credit relationship exposes us to significantly greater risk of loss compared to an adverse development with respect to a consumer loan.
Our customers and employees have been, and will continue to be, targeted by parties using fraudulent e-mails and other communications in attempts to misappropriate passwords, payment card numbers, bank account information or other personal information or to introduce viruses or other malware through “trojan horse” programs to our customers’ computers.
As customer, public, legislative and regulatory expectations and requirements regarding operational and information security have increased, our operations systems and infrastructure must continue to be safeguarded and monitored for potential failures, disruptions and breakdowns. 20 Our customers and employees have been, and will continue to be, targeted by parties using fraudulent e-mails and other communications in attempts to misappropriate passwords, payment card numbers, bank account information or other personal information or to introduce viruses or other malware through “trojan horse” programs to our customers’ computers.
Changes in laws and regulations may also increase our expenses by imposing additional fees or taxes or restrictions on our operations. Significant changes in SEC regulations, such as the proposed climate change disclosures and other regulatory initiatives, can dramatically shift resources and costs to ensure adequate compliance.
Significant changes in SEC regulations, such as the proposed climate change disclosures and other regulatory initiatives, can dramatically shift resources and costs to ensure adequate compliance.
More recently, extraordinary growth in insured deposits caused the ratio of the DIF to total insured deposits to fall below the current statutory minimum of 1.35%. The FDIC has also established a higher reserve ratio of 2% as a long term goal and the minimum level needed to withstand future financial crises of the magnitude of past crises.
The FDIC has also established a higher reserve ratio of 2% as a long term goal and the minimum level needed to withstand future financial crises of the magnitude of past crises.
The availability of dividends from the Bank is limited by the Bank's earnings and capital, as well as various statutes and regulations. Our inability to receive dividends from the Bank could adversely affect our business, financial condition, results of operations and prospects.
Our inability to receive dividends from the Bank could adversely affect our business, financial condition, results of operations and prospects.
In light of several recent high-profile data breaches at other companies involving customer personal and financial information, we believe the potential impact of a cyber security incident involving the Company, any exposure to consumer losses and the cost of technology investments to improve security could cause customer and/or Bank losses, damage to our brand, and increase our costs. 19 Although we make significant efforts to maintain the security and integrity of our information systems and have implemented various measures to manage the risk of a security breach or disruption, there can be no assurance that our security efforts and measures will be effective or that attempted security breaches or disruptions would not be successful or damaging.
In light of several recent high-profile data breaches at other companies involving customer personal and financial information, we believe the potential impact of a cyber security incident involving the Company, any exposure to consumer losses and the cost of technology investments to improve security could cause customer and/or Bank losses, damage to our brand, and increase our costs.
These areas rely primarily upon the natural resources industries, particularly oil production, as well as tourism and government and U.S. military spending for their economic success. In particular, the oil industry plays a significant role in the Alaskan economy. Our business is and will remain sensitive to economic factors that relate to these industries and local and regional business conditions.
In particular, the oil industry plays a significant role in the Alaskan economy. Our business is and will remain sensitive to economic factors that relate to these industries and local and regional business conditions.
A downturn in real estate within our markets would have a negative impact on our results of operations. Approximately 69% of the Bank’s loan portfolio, excluding PPP loans, at December 31, 2022 consisted of loans secured by commercial and residential real estate located in Alaska. Additionally, all of the Company's loans held for sale are secured by residential real estate.
Approximately 72% of the Bank’s loan portfolio at December 31, 2023 consisted of loans secured by commercial and residential real estate mostly located in Alaska. Additionally, all of the Company's loans held for sale are secured by residential real estate.
In addition, as a publicly-traded company, we are subject to regulation by the SEC and NASDAQ. Any change in applicable regulations or federal or state legislation or in policies or interpretations or regulatory approaches to compliance and enforcement, income tax laws and accounting principles could have a substantial impact on us and our operations.
Any change in applicable regulations or federal or state legislation or in policies or interpretations or regulatory approaches to compliance and enforcement, income tax laws and accounting principles could have a substantial impact on us and our operations. Changes in laws and regulations may also increase our expenses by imposing additional fees or taxes or restrictions on our operations.
A failure of a significant number of our borrowers, guarantors and related parties to perform in accordance with the terms of their loans would have an adverse impact on our results of operations.
If a sufficiently large number of depositors sought to withdraw their deposits for whatever reason, we may be unable to obtain the necessary funding at favorable term. A failure of a significant number of our borrowers, guarantors and related parties to perform in accordance with the terms of their loans would have an adverse impact on our results of operations.
While we expect the FRB to raise short-term interest rates in the first half 2023, we cannot predict the nature or impact of future changes in monetary and fiscal policies. 23 Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, Anti-Money Laundering Act of 2020, Real Estate Settlement Procedures Act, Truth-in-Lending Act or other laws and regulations could result in fines, sanctions or other adverse consequences.
Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, Anti-Money Laundering Act of 2020, Real Estate Settlement Procedures Act, Truth-in-Lending Act or other laws and regulations could result in fines, sanctions or other adverse consequences.
Approximately 30% are for general commercial uses, including professional, retail, and small businesses, and are secured by non-real estate assets. Repayment is expected from the borrowers’ cash flow or, secondarily, the collateral. Our exposure to credit loss, if any, is the outstanding amount of the loan if the collateral is proved to be of no value.
At December 31, 2023, approximately 72% of loans are secured by real estate and 4% are unsecured. Approximately 24% are for general commercial uses, including professional, retail, and small businesses, and are secured by non-real estate assets. Repayment is expected from the borrowers’ cash flow or, secondarily, the collateral.
Inflation could lead to increased costs to our customers, making it more difficult for them to repay their loans or other obligations increasing our credit risk. Sustained higher interest rates by the FRB may be needed to tame persistent inflationary price pressures, which could push down asset prices and weaken economic activity.
Sustained higher interest rates by the FRB may be needed to tame persistent inflationary price pressures, which could push down asset prices and weaken economic activity.
In addition, the recent increase and future increase, as is currently expected, in interest rates has in the past, and may in the future, materially and adversely affect our future loan origination volume and margins.
In addition, the recent increase and future increase, as is currently expected, in interest rates has in the past, and may in the future, materially and adversely affect our future loan origination volume and margins. Our information systems or those of our third-party vendors may be subject to an interruption or breach in security, including as a result of cyber-attacks.
If any of the following risks actually occur, the Company’s financial condition and results of operations could be materially and adversely affected. If this were to happen, the value of the Company’s common stock could decline significantly, and you could lose all or part of your investment.
If any of the following risks actually occur, the Company’s financial condition and results of operations could be materially and adversely affected.
Regulatory, Legislative and Legal Risk Factors • We operate in a highly regulated environment and changes of or increases in banking or other laws and regulations or governmental fiscal or monetary policies could adversely affect us. • Changes in the FRB’s monetary or fiscal policies could adversely affect our results of operations and financial condition. • Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, Anti-Money Laundering Act of 2020, Real Estate Settlement Procedures Act, Truth-in-Lending Act or other laws and regulations could result in fines, sanctions or other adverse consequences. • Deposit insurance premiums could increase further in the future.
Regulatory, Legislative and Legal Risk Factors • We operate in a highly regulated environment and changes of or significant increases in banking or other laws and regulations or governmental fiscal or monetary policies could adversely affect us. • We face risks related to the adoption of future legislation and potential changes in federal regulatory agency leadership, policies, and priorities. • Fiscal challenges facing U.S. government could negatively impact financial markets which in turn could have an adverse effect on our financial position or results of operations. • Non-compliance with the USA PATRIOT Act, Bank Secrecy Act, Anti-Money Laundering Act of 2020, Real Estate Settlement Procedures Act, Truth-in-Lending Act or other laws and regulations could result in fines, sanctions or other adverse consequences. • Deposit insurance premiums could increase further in the future. 15 • Recent volatility in the banking sector, triggered by the failures of Silicon Valley Bank, Signature Bank and First Republic Bank, may result in legislative initiatives, agency rulemaking activities, or changes in agency policies and priorities that could subject the Company and the Bank to enhanced government regulation and supervision. • Climate change and related legislative and regulatory initiatives may result in operational changes and expenditures that could significantly impact our business.
Regulatory, Legislative and Legal Risks We operate in a highly regulated environment and changes of or significant increases in banking or other laws and regulations or governmental fiscal or monetary policies could adversely affect us. We are subject to extensive regulation, supervision and examination by federal and state banking authorities.
These policies and procedures, however, may not prevent unexpected losses that could materially affect our financial condition and results of operations. 23 Regulatory, Legislative, Legal and Reputational Risks We operate in a highly regulated environment and changes of or significant increases in banking or other laws and regulations or governmental fiscal or monetary policies could adversely affect us.
Certain hedging strategies that we use to manage interest rate risk may be ineffective to offset any adverse changes in the fair value of these assets due to changes in interest rates and market liquidity. We use derivative instruments to economically hedge the interest rate risk in our residential mortgage loan commitments.
We may not have any remedies available to us against third parties for such losses, or the remedies might not be as broad as the remedies available to the Alaska Housing Finance Corporation against us. 22 Certain hedging strategies that we use to manage interest rate risk may be ineffective to offset any adverse changes in the fair value of these assets due to changes in interest rates and market liquidity.
The unexpected loss of key employees could have a material adverse effect on our business and possibly result in reduced revenues and earnings. Liquidity risk could impair our ability to fund operations and jeopardize our financial conditions. Liquidity is essential to our business.
Any failure or circumvention of our controls and procedures or failure to comply with regulations related to controls and procedures could have a material adverse effect on our business, results of operations, and financial condition. Liquidity risk could impair our ability to fund operations and jeopardize our financial conditions. Liquidity is essential to our business.
Stock Ownership Risk Factors Our ability to pay dividends, repurchase our shares, or to repay our indebtedness depends upon liquid assets held by the Company and the results of operations of our subsidiaries and their ability to pay dividends. The Company is a separate legal entity from our subsidiaries and does not have significant operations of its own.
We could be required to apply a new or revised standard retroactively, resulting in our restating prior period financial statements in material amounts. 27 Stock Ownership Risk Factors Our ability to pay dividends, repurchase our shares, or to repay our indebtedness depends upon liquid assets held by the Company and the results of operations of our subsidiaries and their ability to pay dividends.
Interest Rate and Inflation Risk Factors • Changes in market interest rates could adversely impact the Company. • Inflationary pressures and rising prices may affect our results of operations and financial condition.
Interest Rate and Inflation Risk Factors • Changes in market interest rates could adversely impact the Company. • The impact of interest rates on our mortgage banking business can have a significant impact on revenues. • Inflationary pressures and rising prices may affect our results of operations and financial condition. • Rising interest rates have decreased the value of our held-to-maturity securities portfolio, and we would realize losses if we were required to sell such securities to meet liquidity needs.
The terms and costs of these activities could materially and adversely affect our business, financial condition, results of operations and the trading price of our common stock. Changes in the FRB’s monetary or fiscal policies could adversely affect our results of operations and financial condition.
The terms and costs of these activities could materially and adversely affect our business, financial condition, results of operations and the trading price of our common stock. We face risks related to the adoption of future legislation and potential changes in federal regulatory agency leadership, policies, and priorities. Last Congress, Democrats controlled the White House and both Chambers of Congress.
Accounting, Tax and Financial Risk Factors • Changes in income tax laws and interpretations, or in accounting standards, could materially affect our financial condition or results of operations. • The replacement of the London Inter-Bank Offered Rate ("LIBOR") may adversely affect our business.
Accounting, Tax and Financial Risk Factors • Changes in the federal, state, or local tax laws may negatively impact our financial performance. • Changes in our accounting policies or in accounting standards could materially affect how we report our financial results.
Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings. These impacts may negatively impact our ability to attract deposits, make loans, and achieve satisfactory interest rate spreads, which could adversely affect our financial condition or results of operations.
Earnings could also be adversely affected if the interest rates received on loans and other investments fall more quickly than the interest rates paid on deposits and other borrowings. The Company’s interest rate risk profile is such that, generally, a higher yield curve adds to income while a lower yield curve has a negative impact on earnings.
Inflationary pressures and rising prices may affect our results of operations and financial condition . Inflation has continued rising in 2022 at levels not seen for over 40 years. Inflationary pressures are currently expected to remain elevated throughout 2022 and are likely to continue into 2023.
Inflation has continued rising in 2023 at levels not seen for over 40 years. Inflationary pressures are currently expected to continue in 2024. Inflation could lead to increased costs to our customers, making it more difficult for them to repay their loans or other obligations increasing our credit risk.
Removed
A downturn in real estate within our markets would have a negative impact on our results of operations. • Real estate values may decrease leading to additional and greater than anticipated loan charge-offs. • We may be unable to attract and retain key employees and personnel. • Liquidity risk could impair our ability to fund operations and jeopardize our financial conditions. • A failure of a significant number of our borrowers, guarantors and related parties to perform in accordance with the terms of their loans would have an adverse impact on our results of operations. • The ongoing COVID-19 pandemic, or a similar health crisis, may adversely impact our business and financial results.
Added
If this were to happen, the value of the Company’s common stock could decline significantly, and you could lose all or part of your investment. 14 Risk Factors Summary An investment in the Company's common stock is subject to risks inherent to the Company's business.
Removed
Changes in interest rates affect the demand for new loans, the credit profile of existing loans, the rates received on loans and securities, and rates paid on deposits and borrowings.
Added
Changes in monetary policy, including changes in interest rates, could influence not only the interest we receive on loans and investments and the amount of interest we pay on deposits and borrowings, but such changes could also affect (i) our ability to originate loans and obtain deposits; (ii) the fair value of our financial assets and liabilities; and (iii) the average duration of our mortgage portfolio and other interest-earning assets.
Removed
In particular, increases in interest rates have in the past and will likely in the future reduce RML’s revenues by reducing the market for refinancings, as well as the demand for RML’s other residential loan products. Additionally, increases in interest rates may impact our borrowers' ability to make loan payments, particularly in our commercial loan portfolio.
Added
In January 2022, due to elevated levels of inflation and corresponding pressure to raise interest rates, the FRB announced after several periods of historically low federal funds rates and yields on Treasury notes that it would be slowing the pace of its bond purchasing and increasing the target range for the federal funds rate over time.
Removed
Interest rates may be affected by many factors beyond our control, including general and economic conditions and the monetary and fiscal policies of various governmental and regulatory authorities. Beginning early in 2022, in response to growing signs of inflation, the FRB has increased interest rates rapidly.
Added
The FOMC since has increased 16 the target range eleven times throughout 2022 and 2023. As of December 31, 2023, the target range for the federal funds rate had been increased to 5.25% to 5.50%.
Removed
Although it is expected that the FRB will continue to increase the target federal funds rate in 2023 to combat recent inflationary trends, if interest rates do not rise, or if the FRB were to lower the target federal funds rate to below 0%, these low rates could continue to constrain our interest rate spread and may adversely affect our business forecasts.
Added
It remains uncertain whether the FOMC will further increase the target range for the federal funds rate to attain a monetary policy sufficiently restrictive to return inflation to more normalized levels, begin to reduce the federal funds rate or leave the rate at its current elevated level for a lengthy period of time.
Removed
On the other hand, increases in interest rates, to combat inflation or otherwise, may result in a change in the mix of noninterest and interest-bearing accounts.
Added
Our interest rate spread, net interest margin and net interest income increased during this period of rising interest rates as our interest earning assets generally reprice more quickly than our interest earning liabilities.
Removed
All else being equal, if the interest rates on the Company's interest-bearing liabilities increase at a faster pace than the interest rates on our interest-earning assets, the result would be a reduction in net interest income and with it, a reduction in net income.
Added
Our most significant interest rate risk may result from timing differences in the maturity and re-pricing characteristics of assets and liabilities, changes in the shape of the yield curve, and the potential exercise of explicit or embedded options.
Removed
In addition, anticipated changes in interest rates generally impact the mortgage rate market prior to the actual rate change. We are unable to predict changes in interest rates, which are affected by factors beyond our control, including inflation, deflation, recession, unemployment, money supply and other changes in financial markets.
Added
Although management believes it has implemented effective asset and liability management strategies, including the potential use of derivatives as hedging instruments, to reduce the potential effects of changes in interest rates on our results of operations, any substantial, unexpected, prolonged change in market interest rates could have a material adverse effect on our financial condition and results of operations, and any related economic downturn, especially domestically and in the regions in which we operate, may adversely affect our asset quality, deposit levels, loan demand and results of operations.
Removed
Exposure to interest rate risk is managed by monitoring the repricing frequency of our rate-sensitive assets and rate-sensitive liabilities over any given period. Although we believe the current level of interest rate sensitivity is reasonable, significant fluctuations in interest rates could potentially have an adverse effect on our business, financial condition and results of operations.
Added
Also, our interest rate risk modeling techniques and assumptions likely may not fully predict or capture the impact of actual interest rate changes on our balance sheet. The impact of interest rates on our mortgage banking business can have a significant impact on revenues .
Removed
At December 31, 2022, less than 1% of the Bank's loans are PPP loans which are 100% guaranteed by the SBA. Of the remaining loan portfolio, excluding PPP loans, approximately 69% of loans are secured by real estate and 1% are unsecured.
Added
Changes in interest rates can impact RML’s revenues and net revenues associated with our mortgage activities. A decline in mortgage rates generally increases the demand for mortgage loans as borrowers refinance, but also generally leads to accelerated payoffs. Conversely, in a constant or increasing rate environment, we would expect fewer loans to be refinanced and a decline in payoffs.

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Item 2. Properties

Properties — owned and leased real estate

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Biggest changeUSA Circle, Suite A, Wasilla, AK Traditional Owned Soldotna Financial Center 44384 Sterling Highway, Suite 101, Soldotna, AK Traditional Leased Juneau Financial Center 2094 Jordan Avenue, Juneau, AK Traditional Leased Juneau Downtown Branch 301 North Franklin Street, Juneau, AK Traditional Leased Sitka Financial Center 315 Lincoln Street, Suite 206, Sitka, AK Traditional Leased Ketchikan Financial Center 2491 Tongass Avenue, Ketchikan, AK Traditional Owned Nome Branch 110 Front Street, Suite 100, Nome, AK Traditional Leased Kodiak Loan Production Office 2011 Mill Bay Road, #1, Kodiak, AK Loan Production Leased 29 The following sets forth information about our Home Mortgage Lending branch locations, operated by RML: Locations Leased/Owned Main Office at Calais 100 Calais Drive, Anchorage, AK Leased ReMax/Dynamic Office 3350 Midtown Place, Suite 101, Anchorage, AK Leased Eagle River Office 12812 Old Glenn Highway, Suite C-4, Eagle River, AK Leased Fairbanks Office 324 Old Steese Highway, Suite 7, Fairbanks, AK Leased Juneau Office 8800 Glacier Highway, #232, Juneau, AK Leased Kodiak Office 2011 Mill Bay Road, #1, Kodiak, AK Leased Soldotna Office 44384 Sterling Highway, Suite 102, Soldotna, AK Leased Wasilla Northrim Branch 850 E USA Circle, Suite B, Wasilla, AK Leased
Biggest changePioneer Avenue, Suite 209, Homer, AK Loan Production Leased 34 The following sets forth information about our Home Mortgage Lending branch locations, operated by RML: Locations Leased/Owned Main Office at Calais 100 Calais Drive, Anchorage, AK Leased ReMax/Dynamic Office 3350 Midtown Place, Suite 101, Anchorage, AK Leased Fairbanks Office 324 Old Steese Highway, Suite 7, Fairbanks, AK Leased Juneau Office 8800 Glacier Highway, #232, Juneau, AK Leased Kodiak Office 2695 Mill Bay Road, Kodiak, AK Leased Soldotna Office 44384 Sterling Highway, Suite 102, Soldotna, AK Leased Wasilla Northrim Branch 850 E USA Circle, Suite B, Wasilla, AK Leased Centerpoint Office 3801 Centerpoint Drive, Suite 100, Anchorage, AK Leased Glendale Office 17505 N. 79th Avenue, Suite 411, Glendale, AZ Leased Meridian Office 2541 E.
Added
USA Circle, Suite A, Wasilla, AK Traditional Owned Soldotna Financial Center 44384 Sterling Highway, Suite 101, Soldotna, AK Traditional Leased Juneau Financial Center 2094 Jordan Avenue, Juneau, AK Traditional Leased Juneau Downtown Branch 301 North Franklin Street, Juneau, AK Traditional Leased Sitka Financial Center 315 Lincoln Street, Suite 206, Sitka, AK Traditional Leased Ketchikan Financial Center 2491 Tongass Avenue, Ketchikan, AK Traditional Owned Nome Financial Center 306 W. 5th Avenue, Suite C, Nome, AK Traditional Leased Kodiak Financial Center 2695 Mill Bay Road, Kodiak, AK Traditional Owned Homer Loan Production Office 601 E.
Added
Gala Street, Suite 200, Meridian, ID Leased Portland Office 5933 NE Win Sivers Drive, Suite 205, Office 244, Portland, OR Leased Vancouver Office 1706 D Street, Suite A, Vancouver, WA Leased

Item 3. Legal Proceedings

Legal Proceedings — active lawsuits and investigations

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Biggest changeMINE SAFETY DISCLOSURES Not applicable. 30 PART II
Biggest changeMINE SAFETY DISCLOSURES Not applicable. 35 PART II

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeOn January 27, 2023, the Company announced that its Board of Directors had authorized the repurchase of up to an additional 285,000 shares of common stock. The Company intends to continue to repurchase its stock from time to time depending upon market conditions, but we can make no assurances that we will continue this program.
Biggest changeThe Company intends to continue to repurchase its stock from time to time depending upon market conditions, but we can make no assurances that we will continue this program. Equity Compensation Plan Information The following table sets forth information regarding securities authorized for issuance under the Company’s equity plans as of December 31, 2023.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock trades on the NASDAQ Global Select Stock Market under the symbol, “NRIM.” At March 6, 2023, the number of shareholders of record of our common stock was 212.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS, AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock trades on the NASDAQ Global Select Stock Market under the symbol, “NRIM.” At March 8, 2024, the number of shareholders of record of our common stock was 206.
Plan Category Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a) Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) Equity compensation plans approved by security holders 1 158,697 $25.91 166,318 Total 158,697 $25.91 166,318 1 Consists of the Company's 2020 Stock Incentive Plan, which replaced the 2017 Stock Incentive Plan (the "2017 Plan") We do not have any equity compensation plans that have not been approved by our shareholders. 31 Stock Performance Graph The graph shown below depicts the total return to shareholders during the period beginning after December 31, 2017, and ending December 31, 2022.
Plan Category Number of Securities to be Issued Upon Exercise of Outstanding Options, Warrants and Rights (a) Weighted-Average Exercise Price of Outstanding Options, Warrants and Rights Number of Securities Remaining Available for Future Issuance Under Equity Compensation Plans (Excluding Securities Reflected in Column (a)) Equity compensation plans approved by security holders 1 157,484 $23.29 218,461 Total 157,484 $23.29 218,461 1 Consists of the Company's 2023 Stock Incentive Plan, which replaced the 2020 Stock Incentive Plan (the "2020 Plan") We do not have any equity compensation plans that have not been approved by our shareholders. 36 Stock Performance Graph The graph shown below depicts the total return to shareholders during the period beginning after December 31, 2018, and ending December 31, 2023.
Equity Compensation Plan Information The following table sets forth information regarding securities authorized for issuance under the Company’s equity plans as of December 31, 2022. Additional information regarding the Company’s equity plans is presented in Note 21 of the Notes to Consolidated Financial Statements included in Part II. Item 8 of this report.
Additional information regarding the Company’s equity plans is presented in Note 21 of the Notes to Consolidated Financial Statements included in Part II. Item 8 of this report.
Small Cap Banks Index, comprised of publicly traded banks with a market capitalization between $750 million to $3.3 billion, which are located in the United States. The graph assumes that the value of the investment in the Company’s common stock and each of the two indices was $100 on December 31, 2017, and that all dividends were reinvested.
Small Cap Banks Index, comprised of publicly traded banks with a market capitalization between $58 million to $20.5 billion and average of $1.7 billion, which are located in the United States.
Removed
Repurchase of Securities At December 31, 2022, there were no shares available for repurchase under the previously announced stock repurchase program. The Company repurchased 333,724 shares in 2022 and 279,276 shares in 2021. The Company did not repurchase any shares during the three-month period ended December 31, 2022.
Added
Repurchase of Securities The Company repurchased 55,786 shares during the three-month period ended December 31, 2023 at an average price of $44.90 per share.
Removed
Period Ending Index 12/31/17 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 Northrim BanCorp, Inc. 100.00 99.74 120.28 111.65 147.9 193.35 Russell 3000 100.00 94.76 124.15 150.08 188.6 152.37 S&P U.S. SmallCap Banks 100.00 83.44 104.69 95.08 132.36 116.69 32 ITEM 6. [RESERVED]
Added
Total Number of Shares (or Units) Purchased Average Price Paid per Shares (or Unit) Total Number of Shares (or Units) Purchased as Part of the Publicly Announced Plans or Programs Maximum Number (1) (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs Period (a) (b) (c) (d) Month No. 1 October 1, 2023 - October 31, 2023 22,000 $40.00 22,000 110,113 Month No. 2 November 1, 2023 - November 30, 2023 28,854 $47.42 28,854 81,259 Month No. 3 December 1, 2023 - December 31, 2023 4,932 $52.04 4,932 76,327 Total 55,786 $44.90 55,786 76,327 (1) At December 31, 2023, there were 76,327 shares available for repurchase under the previously announced stock repurchase program.
Added
The Company repurchased 208,673 shares in 2023 and 333,724 shares in 2022. On January 26, 2024, the Company announced that its Board of Directors had authorized the repurchase of up to an additional 110,000 shares of common stock.
Added
The graph assumes that the value of the investment in the Company’s common stock and each of the two indices was $100 on December 31, 2018, and that all dividends were reinvested. Period Ending Index 12/31/18 12/31/19 12/31/20 12/31/21 12/31/22 12/31/23 Northrim BanCorp, Inc. 100.00 120.60 111.94 148.29 193.85 213.99 Russell 3000 100.00 131.02 158.39 199.03 160.80 202.54 S&P U.S.
Added
SmallCap Banks 100.00 125.46 113.94 158.62 139.85 140.55 37 ITEM 6. [RESERVED]

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

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Biggest changeThe Company continued to maintain strong regulatory capital ratios with Tier 1 Capital to Risk Adjusted Assets of 12.81% at December 31, 2022. 34 Trends in Miscellaneous Financial Data (1) Years Ended December 31, (In thousands, except per share data and shares outstanding amounts) 2022 2021 2020 2019 2018 2017 Five Year Compound Growth Rate (Unaudited) Net interest income $95,115 $80,827 $70,665 $64,442 $61,208 $57,678 11 % Provision (benefit) for credit losses 1,846 (4,099) 2,432 (1,175) (500) 3,200 (10) % Other operating income 34,077 52,263 63,328 37,346 32,167 40,474 (3) % Compensation expense, RML acquisition payments — — — 468 — 130 (100) % Other operating expense 88,852 89,196 89,114 76,370 69,800 71,023 5 % Income before provision for income taxes $38,494 $47,993 $42,447 $26,125 $24,075 $23,799 10 % Provision for income taxes 7,753 10,476 9,559 5,434 4,071 10,321 (6) % Net Income 30,741 37,517 32,888 20,691 20,004 13,478 18 % Less: Net income attributable to noncontrolling interest — — — — — 327 (100) % Net income attributable to Northrim Bancorp, Inc. $30,741 $37,517 $32,888 $20,691 $20,004 $13,151 19 % Year End Balance Sheet Assets $2,674,318 $2,724,719 $2,121,798 $1,643,996 $1,502,988 $1,518,596 12 % Loans 1,501,785 1,413,886 1,444,050 1,043,371 984,346 954,953 9 % Deposits 2,387,211 2,421,631 1,824,981 1,372,351 1,228,088 1,258,283 14 % Shareholders' equity 218,629 237,817 221,575 207,117 205,947 192,802 3 % Common shares outstanding 5,700,728 6,014,813 6,251,004 6,558,809 6,883,216 6,871,963 (4) % Average Balance Sheet Assets $2,641,008 $2,432,599 $1,936,047 $1,555,707 $1,493,385 $1,511,052 12 % Earning assets 2,469,383 2,260,778 1,758,839 1,386,557 1,346,449 1,367,203 13 % Loans 1,415,125 1,478,318 1,339,908 1,010,098 971,548 981,001 8 % Deposits 2,354,881 2,125,080 1,638,216 1,276,407 1,227,272 1,248,333 14 % Shareholders' equity 224,773 239,214 211,721 208,602 201,022 193,129 3 % Basic common shares outstanding 5,765,088 6,180,801 6,354,687 6,708,622 6,877,573 6,889,621 (4) % Diluted common shares outstanding 5,829,412 6,249,313 6,431,367 6,808,209 6,981,557 6,977,910 (4) % Per Common Share Data Basic earnings $5.33 $6.07 $5.18 $3.08 $2.91 $1.91 23 % Diluted earnings $5.27 $6.00 $5.11 $3.04 $2.86 $1.88 23 % Book value per share $38.35 $39.54 $35.45 $31.58 $29.92 $28.06 6 % Tangible book value per share (2) $35.55 $36.88 $32.88 $29.12 $27.57 $25.70 7 % Cash dividends per share $1.82 $1.50 $1.38 $1.26 $1.02 $0.86 16 % 35 Years Ended December 31, 2022 2021 2020 2019 2018 2017 Five Year Compound Growth Rate (Unaudited) Performance Ratios Return on average assets 1.16 % 1.54 % 1.70 % 1.33 % 1.34 % 0.87 % 6 % Return on average equity 13.68 % 15.68 % 15.53 % 9.92 % 9.95 % 6.81 % 15 % Equity/assets 8.18 % 8.73 % 10.44 % 12.60 % 13.70 % 12.70 % (8) % Tangible common equity/tangible assets (3) 7.62 % 8.19 % 9.76 % 11.73 % 12.76 % 11.75 % (8) % Net interest margin 3.85 % 3.58 % 4.02 % 4.65 % 4.55 % 4.22 % (2) % Net interest margin (tax equivalent) (4) 3.89 % 3.60 % 4.05 % 4.70 % 4.60 % 4.28 % (2) % Non-interest income/total revenue 26.38 % 39.27 % 47.26 % 36.69 % 34.45 % 41.24 % (9) % Efficiency ratio (5) 68.76 % 66.99 % 66.47 % 75.43 % 74.68 % 72.39 % (1) % Dividend payout ratio 34.17 % 25.02 % 26.66 % 40.79 % 35.08 % 45.44 % (6) % Asset Quality Nonperforming loans, net of government guarantees $6,430 $10,672 $10,048 $13,951 $14,694 $21,411 (21) % Nonperforming assets, net of government guarantees 6,430 15,031 16,289 19,946 22,619 28,729 (26) % Nonperforming loans, net of government guarantees/portfolio loans 0.43 % 0.75 % 0.70 % 1.34 % 1.49 % 2.24 % (28) % Net charge-offs (recoveries)/average loans (0.08) % 0.07 % 0.03 % (0.07) % 0.15 % 0.15 % NM Allowance for credit losses/portfolio loans 0.92 % 0.83 % 1.46 % 1.83 % 1.98 % 2.25 % (16) % Nonperforming assets, net of government guarantees/assets 0.24 % 0.55 % 0.77 % 1.21 % 1.50 % 1.89 % (34) % Other Data Effective tax rate (6) 20 % 22 % 23 % 21 % 17 % 43 % (14) % Number of banking offices (7) 19 18 17 16 16 14 6 % Number of employees (FTE) (8) 469 451 438 431 430 429 2 % 1 These unaudited schedules provide selected financial information concerning the Company that should be read in conjunction with Part II Item 7.
Biggest changeTrends in Miscellaneous Financial Data (1) Years Ended December 31, (In thousands, except per share data and shares outstanding amounts) 2023 2022 2021 2020 2019 2018 Five Year Compound Growth Rate (Unaudited) Net interest income $103,256 $95,115 $80,827 $70,665 $64,442 $61,208 11 % Provision (benefit) for credit losses 3,842 1,846 (4,099) 2,432 (1,175) (500) NM Other operating income 26,375 34,077 52,263 63,328 37,346 32,167 (4) % Compensation expense, RML acquisition payments — — — — 468 — NM Other operating expense 94,181 88,852 89,196 89,114 76,370 69,800 6 % Income before provision for income taxes 31,608 38,494 47,993 42,447 26,125 24,075 6 % Provision for income taxes 6,214 7,753 10,476 9,559 5,434 4,071 9 % Net income $25,394 $30,741 $37,517 $32,888 $20,691 $20,004 5 % Year End Balance Sheet Assets $2,807,497 $2,674,318 $2,724,719 $2,121,798 $1,643,996 $1,502,988 13 % Loans 1,789,497 1,501,785 1,413,886 1,444,050 1,043,371 984,346 13 % Deposits 2,485,055 2,387,211 2,421,631 1,824,981 1,372,351 1,228,088 15 % Shareholders' equity 234,718 218,629 237,817 221,575 207,117 205,947 3 % Common shares outstanding 5,513,459 5,700,728 6,014,813 6,251,004 6,558,809 6,883,216 (4) % Average Balance Sheet Assets $2,690,347 $2,641,008 $2,432,599 $1,936,047 $1,555,707 $1,493,385 12 % Earning assets 2,492,240 2,469,383 2,260,778 1,758,839 1,386,557 1,346,449 13 % Loans 1,643,943 1,415,125 1,478,318 1,339,908 1,010,098 971,548 11 % Deposits 2,364,245 2,354,881 2,125,080 1,638,216 1,276,407 1,227,272 14 % Shareholders' equity 227,244 224,773 239,214 211,721 208,602 201,022 2 % Basic common shares outstanding 5,601,471 5,765,088 6,180,801 6,354,687 6,708,622 6,877,573 (4) % Diluted common shares outstanding 5,661,460 5,829,412 6,249,313 6,431,367 6,808,209 6,981,557 (4) % Per Common Share Data Basic earnings $4.53 $5.33 $6.07 $5.18 $3.08 $2.91 9 % Diluted earnings $4.49 $5.27 $6.00 $5.11 $3.04 $2.86 9 % Book value per share $42.57 $38.35 $39.54 $35.45 $31.58 $29.92 7 % Tangible book value per share (2) $39.68 $35.55 $36.88 $32.88 $29.12 $27.57 8 % Cash dividends per share $2.40 $1.82 $1.50 $1.38 $1.26 $1.02 19 % 39 Years Ended December 31, (In thousands, except per share data and shares outstanding amounts) 2023 2022 2021 2020 2019 2018 Five Year Compound Growth Rate (Unaudited) Performance Ratios Return on average assets 0.94 % 1.16 % 1.54 % 1.70 % 1.33 % 1.34 % (7) % Return on average equity 11.17 % 13.68 % 15.68 % 15.53 % 9.92 % 9.95 % 2 % Equity/assets 8.36 % 8.18 % 8.73 % 10.44 % 12.60 % 13.70 % (9) % Tangible common equity/tangible assets (3) 7.84 % 7.62 % 8.19 % 9.76 % 11.73 % 12.76 % (9) % Net interest margin 4.14 % 3.85 % 3.58 % 4.02 % 4.65 % 4.55 % (2) % Net interest margin (tax equivalent) (4) 4.21 % 3.89 % 3.60 % 4.05 % 4.70 % 4.60 % (2) % Non-interest income/total revenue 20.35 % 26.38 % 39.27 % 47.26 % 36.69 % 34.45 % (10) % Efficiency ratio (5) 72.64 % 68.76 % 66.99 % 66.47 % 75.43 % 74.68 % (1) % Dividend payout ratio 53.59 % 34.17 % 25.02 % 26.66 % 40.79 % 35.08 % 9 % Asset Quality Nonperforming loans, net of government guarantees $5,002 $6,430 $10,672 $10,048 $13,951 $14,694 (19) % Nonperforming assets, net of government guarantees 5,810 6,430 15,031 16,289 19,946 22,619 (24) % Nonperforming loans, net of government guarantees/portfolio loans 0.28 % 0.43 % 0.75 % 0.70 % 1.34 % 1.49 % (28) % Net charge-offs (recoveries)/average loans — % (0.08) % 0.07 % 0.03 % (0.07) % 0.15 % (100) % Allowance for credit losses/portfolio loans 0.97 % 0.92 % 0.83 % 1.46 % 1.83 % 1.98 % (13) % Nonperforming assets, net of government guarantees/assets 0.21 % 0.24 % 0.55 % 0.77 % 1.21 % 1.50 % (33) % Other Data Effective tax rate (6) 20 % 20 % 22 % 23 % 21 % 17 % 3 % Number of banking offices (7) 20 19 18 17 16 16 5 % Number of employees (FTE) (8) 472 469 451 438 431 430 2 % 1 These unaudited schedules provide selected financial information concerning the Company that should be read in conjunction with Part II Item 7.
See reconciliation to net interest margin, the comparable GAAP measurement below. 5 In managing our business, we review the efficiency ratio exclusive of intangible asset amortization, which is a non-GAAP performance measurement. Management believes that this is a useful financial measurement because we believe this presentation provides investors with a more accurate picture of our operating efficiency.
See reconciliation to net interest margin, the most comparable GAAP measurement below. 5 In managing our business, we review the efficiency ratio exclusive of intangible asset amortization, which is a non-GAAP performance measurement. Management believes that this is a useful financial measurement because we believe this presentation provides investors with a more accurate picture of our operating efficiency.
Non-owner occupied and multifamily - This category includes non-farm, non-residential real estate loans for a variety of commercial property types and purposes, including investment real estate loans that are primarily secured by office and 58 industrial buildings, warehouses or retail buildings where the owner of the building does not occupy the property, non-owner occupied apartment or multifamily residential buildings, and various special purpose properties.
Non-owner occupied and multifamily - This category includes non-farm, non-residential real estate loans for a variety of commercial property types and purposes, including investment real estate loans that are primarily secured by office and industrial buildings, warehouses or retail buildings where the owner of the building does not occupy the property, non-owner occupied apartment or multifamily residential buildings, and various special purpose properties.
The ongoing impacts of the CECL methodology will be dependent upon changes in economic conditions and forecasts, as well as loan portfolio composition, quality, and duration. 42 See the “Loans and Lending Activity” section under “Financial Condition” and Note 5 of the Notes to Consolidated Financial Statements included in Part II.
The ongoing impacts of the CECL methodology will be dependent upon changes in economic conditions and forecasts, as well as loan portfolio composition, quality, and duration. See the “Loans and Lending Activity” section under “Financial Condition” and Note 5 of the Notes to Consolidated Financial Statements included in Part II.
The Company utilizes the DCF method to quantitatively estimate credit losses for this pool. Residential real estate - This category of loans consists of the following loan types: 1-4 family residential properties secured by first liens - This category of loans includes term loans secured by first liens on residential real estate.
The Company utilizes the DCF method to quantitatively estimate credit losses for this pool. 62 Residential real estate - This category of loans consists of the following loan types: 1-4 family residential properties secured by first liens - This category of loans includes term loans secured by first liens on residential real estate.
In 2021, there was a reversal of the provision primarily due to a decrease in projected loss rates following the uncertainty of the impacts of the COVID-19 pandemic in 2020 and the first half of 2021.
In 2021, there was a reversal of the provision primarily due to a decrease in projected loss rates following the uncertainty of the impacts of the COVID-19 pandemic in 2020 46 and the first half of 2021.
There can be no assurance that changes in circumstances, estimates or assumptions may result in additional impairment of all, or some portion of, goodwill or other intangible assets. The Company performed its annual goodwill impairment testing at December 31, 2022 and 2021 in accordance with the policy described in Note 1 to the financial statements included in Part II.
There can be no assurance that changes in circumstances, estimates or assumptions may result in additional impairment of all, or some portion of, goodwill or other intangible assets. The Company performed its annual goodwill impairment testing at December 31, 2023 and 2022 in accordance with the policy described in Note 1 to the financial statements included in Part II.
The trust preferred securities are not accounted for on the Bank’s financial statements nor are they included in its capital. As a result, the Company has $10 million more in regulatory capital than the Bank at December 31, 2022 and 2021, respectively, which explains most of the difference in the capital ratios for the two entities.
The trust preferred securities are not accounted for on the Bank’s financial statements nor are they included in its capital. As a result, the Company has $10 million more in regulatory capital than the Bank at December 31, 2023 and 2022, respectively, which explains most of the difference in the capital ratios for the two entities.
Significant positive inputs to the qualitative assessment included the Company’s increasing net income as compared to historical trends; the Company's increasing market share for deposits in our markets; results of regulatory examinations; peer comparisons of the Company's net interest margin; trends in the Company’s cash flows; improvements in the Alaskan economy in 2022; increases in the Company's market share of mortgage originations; and increases in the Company's stock price.
Significant positive inputs to the qualitative assessment included the Company’s increasing net income as compared to historical trends; the Company's increasing market share for deposits in our markets; results of regulatory examinations; peer comparisons of the Company's net interest margin; trends in the Company’s cash flows; improvements in the Alaskan economy in 2023; increases in the Company's market share of mortgage originations; and increases in the Company's stock price.
We believe that the positive inputs to the qualitative assessment noted above outweigh the negative inputs for both of the Company's operating segments, and we therefore concluded that it is more likely than not that the fair value of the Company exceeds its carrying value at December 31, 2022 and that no potential impairment existed at that time.
We believe that the positive inputs to the qualitative assessment noted above outweigh the negative inputs for both of the Company's operating segments, and we therefore concluded that it is more likely than not that the fair value of the Company exceeds its carrying value at December 31, 2023 and that no potential impairment existed at that time.
Discussions of 2020 items and year-to-year comparisons between 2021 and 2020 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II. Item 7 of our Annual Report on Form 10-K for fiscal year ended December 31, 2021.
Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can be found in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Part II. Item 7 of our Annual Report on Form 10-K for fiscal year ended December 31, 2022.
Management believes that tax-equivalent net interest margin is a useful financial measure because it enables investors to evaluate net interest margin excluding tax expense in order to monitor our effectiveness in growing higher interest yielding assets and managing our costs of 36 interest bearing liabilities over time on a fully tax equivalent basis.
Management believes that tax-equivalent net interest margin is a useful financial measure because it enables investors to evaluate net interest margin 40 excluding tax expense in order to monitor our effectiveness in growing higher interest yielding assets and managing our costs of interest bearing liabilities over time on a fully tax equivalent basis.
Given that the Bank currently meets and the Bank anticipates that it will continue to meet, all applicable capital adequacy requirements for a “well-capitalized” institution by regulatory standards, the Company expects to continue to receive dividends from the Bank during 2023.
Given that the Bank currently meets and the Bank anticipates that it will continue to meet, all applicable capital adequacy requirements for a “well-capitalized” institution by regulatory standards, the Company expects to continue to receive dividends from the Bank during 2024.
Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this report. See reconciliation to comparable GAAP measurement below. 6 The Company’s 2017 results included the impact of the enactment of the Tax Cuts and Jobs Act, which was signed into law on December 22, 2017.
Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" of this report. See reconciliation to efficiency ratio, the most comparable GAAP measurement below. 6 The Company’s 2017 results included the impact of the enactment of the Tax Cuts and Jobs Act, which was signed into law on December 22, 2017.
Management believes that cash requirements to fund future non-deposit liabilities, including operating lease liabilities, other liabilities, or borrowings as of December 31, 2022, are not material to the Company's liquidity position as of December 31, 2022. The Company has other available sources of liquidity to fund unforeseen liquidity needs.
Management believes that cash requirements to fund future non-deposit liabilities, including operating lease liabilities, other liabilities, or borrowings as of December 31, 2023, are not material to the Company's liquidity position as of December 31, 2023. 59 The Company has other available sources of liquidity to fund unforeseen liquidity needs.
In 2022, proceeds from the sale of loans held for sale net of proceeds used in originations decreased as compared to 2021 as refinance and purchase activity slowed.
In 2023, proceeds from the sale of loans held for sale net of proceeds used in originations decreased as compared to 2022 as refinance and purchase activity slowed.
Item 8 of this report. At December 31, 2022, the Company performed its annual impairment test by performing a qualitative assessment.
Item 8 of this report. At December 31, 2023, the Company performed its annual impairment test by performing a qualitative assessment.
Management attributes higher growth in core loans in 2022 and 2021 to our ability to attract new customers through our outreach to the community.
Management attributes higher growth in core loans in 2023 and 2022 to our ability to attract new customers through our outreach to the community.
Investment securities designated as available for sale comprised 93% of the portfolio as of December 31, 2022 and are available to meet liquidity requirements in a contingency situation. 44 Our investment portfolio consists primarily of government sponsored entity securities, corporate securities, collateralized loan obligations, and municipal securities.
Investment securities designated as available for sale comprised 93% of the portfolio as of December 31, 2023 and are available to meet liquidity requirements in a contingency situation. 48 Our investment portfolio consists primarily of government sponsored entity securities, corporate securities, collateralized loan obligations, and municipal securities.
FHLB advances are dependent on the availability of acceptable collateral such as marketable securities or real estate loans, although all FHLB advances are secured by a blanket pledge of the Company’s assets. At December 31, 2022, our maximum borrowing line from the FHLB was $1.195 billion, approximately 45% of the Bank’s assets, subject to the FHLB’s collateral requirements.
FHLB advances are dependent on the availability of acceptable collateral such as marketable securities or real estate loans, although all FHLB advances are secured by a blanket pledge of the Company’s assets. At December 31, 2023, our maximum borrowing line from the FHLB was approximately 45% of the Bank’s assets, subject to the FHLB’s collateral requirements.
The table below shows the cumulative effect the repurchase of common shares since the inception of the Company on diluted earnings per share: Years Ending: Diluted EPS as Reported Diluted EPS without Stock Repurchase 2022 $5.27 $3.92 2021 $6.00 $4.79 2020 $5.11 $4.22 2019 $3.04 $2.59 2018 $2.86 $2.56 Regulatory Capital Requirements: We are subject to minimum capital requirements.
The table below shows the cumulative effect the repurchase of common shares since the inception of the Company on diluted earnings per share: Years Ending: Diluted EPS as Reported Diluted EPS without Stock Repurchase 2023 $4.49 $3.23 2022 $5.27 $3.92 2021 $6.00 $4.79 2020 $5.11 $4.22 2019 $3.04 $2.59 Regulatory Capital Requirements: We are subject to minimum capital requirements.
FTE includes 133, 130, 126, 120, 110, and 115 Home Mortgage Lending employees in 2022, 2021, 2020, 2019, 2018 and 2017, respectively. Reconciliation of Selected Non-GAAP Financial Data to GAAP Financial Measures These unaudited schedules provide selected financial information concerning the Company that should be read in conjunction with "Part II. Item 7.
FTE includes 140, 133, 130, 126, 120, and 110 Home Mortgage Lending employees at the end of 2023, 2022, 2021, 2020, 2019 and 2018, respectively. Reconciliation of Selected Non-GAAP Financial Data to GAAP Financial Measures These unaudited schedules provide selected financial information concerning the Company that should be read in conjunction with "Part II. Item 7.
The aggregate amount of certificates of deposit in amounts of $250,000 or more at December 31, 2022 and 2021, was $77.5 million and $77.1 million, respectively.
The aggregate amount of certificates of deposit in amounts of $250,000 or more at December 31, 2023 and 2022, was $142.1 million and $77.5 million, respectively.
Loan fees recognized during the period and included in the yield calculation totaled $8.5 million, $16.2 million and $8.9 million for 2022, 2021 and 2020, respectively. 2 Nonaccrual loans are included with a zero effective yield.
Loan fees recognized during the period and included in the yield calculation totaled $4.4 million, $8.5 million and $16.2 million for 2023, 2022 and 2021, respectively. 2 Nonaccrual loans are included with a zero effective yield.
In 2018, the Company finalized changes related to the reduction in the federal tax rate which resulted in a $470,000 reduction in tax expense. 7 Number of banking offices does not include RML locations. 2022 number of banking offices includes 18 full service branches and 1 loan production office. 2021 number of banking offices includes 17 full service branches and 1 loan production office. 2020 number of banking offices includes 16 full service branches and 1 loan production office. 2018 number of banking offices includes 15 full service branches and 1 loan production office. 8 FTE includes 336, 321, 312, 311, 320, and 314 Community Banking employees in 2022, 2021, 2020, 2019, 2018 and 2017, respectively.
In 2018, the Company finalized changes related to the reduction in the federal tax rate which resulted in a $470,000 reduction in tax expense. 7 Number of banking offices does not include RML locations. 2023 number of banking offices includes 19 full service branches and one loan production office. 2022 number of banking offices includes 18 full service branches and one loan production office. 2021 number of banking offices includes 17 full service branches and one loan production office. 2020 number of banking offices includes 16 full service branches and one loan production office. 2018 number of banking offices includes 15 full service branches and 1 loan production office. 8 FTE includes 332, 336, 321, 312, 311, and 320 Community Banking employees at the end of 2023, 2022, 2021, 2020, 2019 and 2018, respectively.
Average nonaccrual loans included in the computation of the average loans were $8.6 million, $12.3 million, and $13.8 million in 2022, 2021 and 2020, respectively. 3 Consists of investment securities available for sale, investment securities held to maturity, marketable equity securities, and investment in Federal Home Loan Bank stock.
Average nonaccrual loans included in the computation of the average loans were $7.1 million, $8.6 million, and $12.3 million in 2023, 2022 and 2021, respectively. 3 Consists of investment securities available for sale, investment securities held to maturity, marketable equity securities, and investment in Federal Home Loan Bank stock.
Other available sources of liquidity for the bank holding company include the issuance of debt and the issuance of common or preferred stock. As of December 31, 2022, the Company has 10.0 million authorized shares of common stock, of which 5.7 million are issued and outstanding, leaving 4.3 million shares available for issuance.
Other available sources of liquidity for the bank holding company include the issuance of debt and the issuance of common or preferred stock. As of December 31, 2023, the Company has 10.0 million authorized shares of common stock, of which approximately 5.5 million are issued and outstanding, leaving approximately 4.5 million shares available for issuance.
Mortgage banking income consists of gross income from the origination and sale of mortgages as well as mortgage loan servicing fees and is the largest component of other operating income at 63% of total other operating income in 2022 and 81% in 2021.
Mortgage banking income consists of gross income from the origination and sale of mortgages as well as mortgage loan servicing fees and is the largest component of other operating income at 48% of total other operating income in 2023 and 63% in 2022.
Interest income and cost of funds, or interest expense, and mortgage banking income are affected significantly by general economic conditions, particularly changes in market interest rates, by government policies and the actions of regulatory authorities, and by competition in our markets. We earned net income of $30.7 million in 2022, compared to net income of $37.5 million in 2021.
Interest income and cost of funds, or interest expense, and mortgage banking income are affected significantly by general economic conditions, particularly changes in market interest rates, by government policies and the actions of regulatory authorities, and by competition in our markets. We earned net income of $25.4 million in 2023, compared to net income of $30.7 million in 2022.
These limitations apply to the borrower’s total outstanding indebtedness and commitments to us, including the indebtedness of any guarantor. Generally, we are permitted to make loans to one borrower of up to 15% of the unimpaired capital and surplus of the Bank. The legal lending limit for the Bank was $32.1 million at December 31, 2022.
These limitations apply to the borrower’s total outstanding indebtedness and commitments to us, including the indebtedness of any guarantor. Generally, we are permitted to make loans to one borrower of up to 15% of the unimpaired capital and surplus of the Bank. The legal lending limit for the Bank was $34.5 million at December 31, 2023.
The portion of the Company's ACL that related to the loans with direct exposure to the oil and gas industry was estimated at $786,000 and $684,000 as of December 31, 2022 and 2021, respectively.
The portion of the Company's ACL that related to the loans with direct exposure to the oil and gas industry was estimated at $884,000 and $786,000 as of December 31, 2023 and 2022, respectively.
During these periods, net income per diluted share was $5.27 and $6.00, respectively. The following sections present discussion of the components that make up net income. 39 Net Interest Income / Net Interest Margin Net interest income is the difference between interest income from loan and investment securities portfolios and interest expense on customer deposits and borrowings.
During these periods, net income per diluted share was $4.49 and $5.27, respectively. The following sections present discussion of the components that make up net income. 43 Net Interest Income / Net Interest Margin Net interest income is the difference between interest income from loan and investment securities portfolios and interest expense on customer deposits and borrowings.
Servicing rights: The Company measures mortgage servicing rights ("MSRs") and commercial servicing rights ("CSRs") at fair value on a recurring basis with changes in fair value going through earnings in the period in which the change occurs.
Servicing rights: The Company measures mortgage servicing rights (“MSRs”) and commercial servicing rights (“CSRs”) at fair value on a recurring basis with changes in fair value going through earnings in the period in which the change occurs.
The primary sources of demands on our liquidity are customer demands for withdrawal of deposits and borrowers’ demands that we advance funds against unfunded lending commitments. The Company had cash and cash equivalents of $259.4 million, or 10% of total assets at December 31, 2022 compared to $645.8 million, or 24% of total assets as of December 31, 2021.
The primary sources of demands on our liquidity are customer demands for withdrawal of deposits and borrowers’ demands that we advance funds against unfunded lending commitments. The Company had cash and cash equivalents of $118.5 million, or 4% of total assets at December 31, 2023 compared to $259.4 million, or 10% of total assets as of December 31, 2022.
This decrease was mostly due to principal paydowns on nonaccrual loans 50 which were only partially offset by additions to nonaccrual loans in 2022. There was interest income of $2.2 million and $1.6 million recognized in net income for 2022 and 2021, respectively, related to interest collected on nonaccrual loans whose principal had been paid down to zero.
This decrease was mostly due to principal paydowns on nonaccrual loans which were only partially offset by additions to nonaccrual loans in 2023. There was interest income of $656,000 and $2.2 million recognized in net income for 2023 and 2022, respectively, related to interest collected on nonaccrual loans whose principal had been paid down to zero.
The Company is subject to provisions under Alaska state law which generally limits the amount of outstanding debt to 35% of total assets or $929.3 million at December 31, 2021 and 35% of total assets or $948.0 million at December 31, 2021. 54 Junior Subordinated Debentures On December 16, 2005, the Company’s subsidiary, NST2, issued trust preferred securities in the principal amount of $10 million.
The Company is subject to provisions under Alaska state law which generally limits the amount of outstanding debt to 35% of total assets or $975.9 million at December 31, 2023 and $929.3 million at December 31, 2022. Junior Subordinated Debentures On December 16, 2005, the Company’s subsidiary, NST2, issued trust preferred securities in the principal amount of $10 million.
The Company holds a government guarantee related to the OREO property that was sold in December 2022; however, the value of this guarantee has not been included in the Company's financial statements in 2022 due to uncertainty as to the total amount that will be received from the guarantee.
The Company held a government guarantee related to the OREO property that was sold in December 2022; however, the value of this guarantee was not included in the Company's financial statements in 2022 due to uncertainty as to the total amount that would be received from the guarantee.
At December 31, 2022 and 2021, $59.3 million and $59.5 million in securities were pledged for deposits and borrowings, respectively. 45 The following tables set forth the composition of our investment portfolio at December 31 for the years indicated: (In Thousands) Amortized Cost Fair Value Securities Available for Sale: 2022: U.S.
At December 31, 2023 and 2022, $180.1 million and $59.3 million in securities were pledged for deposits and borrowings, respectively. 49 The following tables set forth the composition of our investment portfolio at December 31 for the years indicated: (In Thousands) Amortized Cost Fair Value Securities Available for Sale: 2023: U.S.
At December 31, 2022, the Company had two relationships whose total direct and indirect commitments exceeded $32.1 million; however, no individual direct relationship exceeded the loans-to-one borrower limitation. The Company's loans have grown significantly in recent history, in part due to PPP loans, but over the last 3 years, core loans have also increased significantly.
At December 31, 2023, the Company had two relationships whose total direct and indirect commitments exceeded $34.5 million; however, no individual direct relationship exceeded the loans-to-one borrower limitation. The Company's loans have grown significantly in recent history, in part due to PPP loans, but over the last four years, core loans have also increased significantly.
See reconciliation to shareholders' equity to total assets below. 4 Tax-equivalent net interest margin is a non-GAAP performance measurement in which interest income on non-taxable investments and loans is presented on a tax-equivalent basis using a combined federal and state statutory rate of 28.43% in 2018 through 2022 and 41.11% in 2017.
See reconciliation to shareholders' equity to total assets, the most comparable GAAP measurement below. 4 Tax-equivalent net interest margin is a non-GAAP performance measurement in which interest income on non-taxable investments and loans is presented on a tax-equivalent basis using a combined federal and state statutory rate of 28.43% in 2018 through 2023.
The following table presents the amount of common shares repurchased and the weighted average price paid per share for the periods indicated: Years Ending: Common Shares Repurchased Weighted Average Price 2022 333,724 $42.42 2021 279,276 $41.30 2020 327,000 $30.51 2019 347,676 $36.15 2018 15,468 $31.90 At December, 31, 2022, there were no shares available under the previously announced stock repurchase program.
The following table presents the amount of common shares repurchased and the weighted average price paid per share for the periods indicated: Years Ending: Common Shares Repurchased Weighted Average Price 2023 208,673 $43.34 2022 333,724 $42.42 2021 279,276 $41.30 2020 327,000 $30.51 2019 347,676 $36.15 At December, 31, 2023, there were 76,327 shares available under the previously announced stock repurchase program.
In addition to the quantitative portion of the ACL derived using either the DCF or weighted average remaining life method, the Company also considers the effects of the following qualitative factors in its calculation of expected losses in the loan portfolio: • Lending strategy, policies, and procedures; • Quality of internal loan review; • Lending management and staff; • Trends in underlying collateral values; • Competition, legal, and regulatory changes; • Economic and business conditions including fluctuations in the price of Alaska North slope crude oil; 59 • Inflation and monetary policy in the United States; • Changes in trends, volume and severity of adversely classified loans, nonaccrual loans, and delinquencies; • Concentration of credit; and • Changes in the nature and volume of the loan portfolio.
In addition to the quantitative portion of the ACL derived using either the DCF or weighted average remaining life method, the Company also considers the effects of the following qualitative factors in its calculation of expected losses in the loan portfolio: • Lending strategy, policies, and procedures; • Quality of internal loan review; • Lending management and staff; • Trends in underlying collateral values; • Competition, legal, and regulatory changes; • Economic and business conditions including fluctuations in the price of Alaska North slope crude oil; • Inflation and monetary policy in the United States; • Changes in trends, volume and severity of adversely classified loans, nonaccrual loans, and delinquencies; • Concentration of credit; and • Changes in the nature and volume of the loan portfolio. 63 Management performs a hypothetical sensitivity analysis of our ACL quarterly to understand the impact of a change in a key input on our ACL.
The increase in net interest margin in 2022 as compared to 2021 is primarily the result of higher yields on earning-assets and higher average core portfolio loan balances and long-term and short-term investment balances. 40 The following table sets forth for the periods indicated information with regard to average balances of assets and liabilities, as well as the total dollar amounts of interest income from interest-earning assets and interest expense on interest-bearing liabilities.
The increase in net interest margin in 2023 as compared to 2022 is primarily the result of higher yields on earning-assets and higher average portfolio loan balances. 44 The following table sets forth for the periods indicated information with regard to average balances of assets and liabilities, as well as the total dollar amounts of interest income from interest-earning assets and interest expense on interest-bearing liabilities.
The Company's effective tax rate decreased to 20.1% in 2022 from 21.8% in 2021, primarily due to an increase in tax exempt income and low income housing tax credits as a percentage of pre-tax income in 2022 compared to 2021.
The Company's effective tax rate decreased to 19.7% in 2023 from 20.1% in 2022, primarily due to an increase in tax exempt income and low income housing tax credits as a percentage of pre-tax income in 2023 compared to 2022.
Changes in net interest income are influenced by yields and the level and relative mix of interest-earning assets and interest-bearing liabilities. Net interest income in 2022 was $95.1 million, compared to $80.8 million in 2021.
Changes in net interest income are influenced by yields and the level and relative mix of interest-earning assets and interest-bearing liabilities. Net interest income in 2023 was $103.3 million, compared to $95.1 million in 2022.
The Company estimates that $83.4 million, or approximately 6% of loans as of December 31, 2022 have direct exposure to the oil and gas industry as compared to $63.6 million, or approximately 4% of loans as of December 31, 2021.
The Company estimates that $96.1 million, or approximately 5% of loans as of December 31, 2023 have direct exposure to the oil and gas industry as compared to $83.4 million, or approximately 6% of loans as of December 31, 2022.
The Company has identified the following pools of financial assets with similar risk characteristics for measuring expected credit losses under CECL as adopted by the Company on January 1, 2021, which are unchanged as of December 31, 2022: Commercial & industrial - Commercial loans are loans for commercial, corporate and business purposes.
The Company has identified the following pools of financial assets with similar risk characteristics for measuring expected credit losses under CECL, which are unchanged as of December 31, 2023: Commercial & industrial - Commercial loans are loans for commercial, corporate and business purposes.
As of January 1, 2022, management utilizes and forecasts U.S. unemployment as the sole loss driver for all of the loan pools that utilize the DCF method. The Company's regression models for PD as of January 1, 2022 utilize peer historical loan level default data.
As of December 31, 2023 and 2022, management utilizes and forecasts U.S. unemployment as the sole loss driver for all of the loan pools that utilize the DCF method. The Company's regression models for PD as of these time periods utilize peer historical loan level default data.
The Company's unfunded commitments to borrowers that have direct exposure to the oil and gas industry were $51.8 million and $66.4 million at December 31, 2022 and 2021, respectively.
The Company's unfunded commitments to borrowers that have direct exposure to the oil and gas industry were $38.6 million and $51.8 million at December 31, 2023 and 2022, respectively.
The following table sets forth information regarding changes in the purchased receivable ACL for the years indicated: (In Thousands) 2022 2021 2020 Balance at beginning of year $— $73 $94 Cumulative effect of adopting ASU 2016-13 — (73) — Charge-offs — — — Recoveries — — — Charge-offs net of recoveries — — — Reserve for (recovery from) purchased receivables — — (21) Balance at end of year $— $— $73 Ratio of net charge-offs (recoveries) to average purchased receivables during the period — % — % — % Deposits Deposits are our primary source of funds.
Purchased receivable income was $4.5 million and $2.0 million in 2023 and 2022, respectively. 56 The following table sets forth information regarding changes in the purchased receivable ACL for the years indicated: (In Thousands) 2023 2022 2021 Balance at beginning of year $— $— $73 Cumulative effect of adopting ASU 2016-13 — — (73) Charge-offs — — — Recoveries — — — Charge-offs net of recoveries — — — Reserve for (recovery from) purchased receivables — — — Balance at end of year $— $— $— Ratio of net charge-offs (recoveries) to average purchased receivables during the period — % — % — % Deposits Deposits are our primary source of funds.
The Company determined that an ACL of $13.8 million, or 0.92% of portfolio loans, is appropriate as of December 31, 2022 based on our analysis of the current credit quality of the portfolio and forecasted economic conditions.
The Company determined that an ACL of $17.3 million, or 0.97% of portfolio loans, is appropriate as of December 31, 2023 based on our analysis of the current credit quality of the portfolio and forecasted economic conditions.
Total deposits decreased 1% to $2.39 billion at December 31, 2022 from $2.42 billion at December 31, 2021. Our deposits generally are expected to fluctuate according to the level of our market share, economic conditions, and normal seasonal trends.
Total deposits increased 4% to $2.49 billion at December 31, 2023 from $2.39 billion at December 31, 2022. Our deposits generally are expected to fluctuate according to the level of our market share, economic conditions, and normal seasonal trends.
However, on January 27, 2023 the Company announced that its Board of Directors authorized the repurchase of up to an additional 285,000 shares of common stock.
However, on January 26, 2024 the Company announced that its Board of Directors authorized the repurchase of up to an additional 110,000 shares of common stock.
Item 8 of this report, net cash provided by operating activities was $78.1 million in 2022 and $112.0 million in 2021, respectively. The primary source of cash provided by operating activities for both periods was proceeds from the sale of loans held for sale net of proceeds used in originations, as well as positive net income.
Item 8 of this report, net cash provided by operating activities was $38.9 million in 2023 and $78.1 million in 2022, respectively. The primary source of cash provided by operating activities for both periods was positive net income, and in 2022 also included proceeds from the sale of loans held for sale net of proceeds used in originations.
The following table details loan balances by loan segment and class of financing receivable for loans with direct oil and gas exposure as of the dates indicated: (In Thousands) December 31, 2022 December 31, 2021 Commercial & industrial loans $66,864 $45,338 Commercial real estate: Owner occupied properties 9,108 10,244 Non-owner occupied and multifamily properties 6,013 6,564 Other loans 1,431 1,495 Total loans $83,416 $63,641 The Company monitors other concentrations within the loan portfolio depending on trends in the current and future estimated economic conditions.
The following table details loan balances by loan segment and class of financing receivable for loans with direct oil and gas exposure as of the dates indicated: (In Thousands) December 31, 2023 December 31, 2022 Commercial & industrial loans $77,917 $66,864 Commercial real estate: Owner occupied properties 11,410 9,108 Non-owner occupied and multifamily properties 5,434 6,013 Other loans 1,357 1,431 Total loans $96,118 $83,416 The Company monitors other concentrations within the loan portfolio depending on trends in the current and future estimated economic conditions.
See “Cautionary Note Regarding Forward-Looking Statements.” Executive Overview Net income decreased 18% to $30.7 million or $5.27 per diluted share for the year ended December 31, 2022, from $37.5 million, or $6.00 per diluted share, for the year ended December 31, 2021.
See “Cautionary Note Regarding Forward-Looking Statements.” Executive Overview Net income decreased 17% to $25.4 million or $4.49 per diluted share for the year ended December 31, 2023, from $30.7 million, or $5.27 per diluted share, for the year ended December 31, 2022.
Given these sources of liquidity and our expectations for customer demands for cash and for our operating cash needs, we believe our sources of liquidity to be sufficient in the foreseeable future. 55 As shown in the Consolidated Statements of Cash Flows included in Part II.
Advances are available through the BTFP until March 11, 2024. Given these sources of liquidity and our expectations for customer demands for cash and for our operating cash needs, we believe our sources of liquidity to be sufficient in the foreseeable future. As shown in the Consolidated Statements of Cash Flows included in Part II.
These decreases were partially offset by life insurance proceeds received in connections with the death of the Company's former Executive Vice President, General Counsel and Corporate Secretary who passed away on November 11, 2021, as well as increases in commercial servicing revenue, service charges on deposit accounts, and bankcard fees.
Life insurance proceeds were received in 2022 in connections with the death of the Company's former Executive Vice President, General Counsel and Corporate Secretary who passed away on November 11, 2021. These decreases were partially offset by increases in purchased receivable income, gain on marketable equity securities, service charges on deposit accounts, and bankcard fees.
These include borrowings available through our correspondent banking relationships and our credit lines with the Federal Reserve Bank and the FHLB. At December 31, 2022, our liquid assets were $570.7 million and our funds available for borrowing under our existing lines of credit were $1.24 billion.
These include borrowings available through our correspondent banking relationships and our credit lines with the Federal Reserve Bank and the FHLB. At December 31, 2023, our liquid assets were $575.6 million and our funds available for borrowing under our existing lines of credit were $742.9 million.
Federal Reserve Bank : The Federal Reserve Bank of San Francisco (the "Federal Reserve Bank") is holding $44.3 million of loans as collateral to secure advances made through the discount window as of December 31, 2022. There were no discount window advances outstanding at December 31, 2022 or 2021.
Federal Reserve Bank : The Federal Reserve Bank of San Francisco (the “Federal Reserve Bank”) is holding $60 million of investment securities as collateral to secure advances made through the discount window as of December 31, 2023. There were no discount window advances outstanding at December 31, 2023 or 2022.
The Company paid less than $1,000 in interest in 2022 and 2021 on this agreement. Other Short and Long-term Borrowings: The Company had no short or long-term borrowings outstanding other than the FHLB advances noted above as of December 31, 2022 or 2021.
The Company paid $241,000 in interest expense on this BTFP advance in 2023. 58 Other Short and Long-term Borrowings: The Company had no short or long-term borrowings outstanding other than the FHLB advances noted above as of December 31, 2023 or 2022.
The average maturity of the investment portfolio was approximately three and a quarter years at December 31, 2022. Investment securities may be pledged as collateral to secure public deposits or borrowings.
The average maturity of the investment portfolio was approximately 2.8 years at December 31, 2023 as compared to approximately 3.3 years at December 31, 2022. Investment securities may be pledged as collateral to secure public deposits or borrowings.
The only deposit category with stated maturity dates is certificates of deposit. At December 31, 2022, we had $192.9 million in certificates of deposit, of which $128.4 million, or 67%, are scheduled to mature in 2023. The Company’s certificates of deposit increased to $192.9 million during 2022 as compared to $178.0 million at December 31, 2021.
The only deposit category with stated maturity dates is certificates of deposit. At December 31, 2023, we had $331.3 million in certificates of deposit, of which $268.5 million, or 81%, are scheduled to mature in 2024. The Company’s certificates of deposit increased to $331.3 million during 2023 as compared to $192.9 million at December 31, 2022.
Minimum Required Capital Well-Capitalized Actual Ratio Company Actual Ratio Bank December 31, 2022 Total risk-based capital 8.00% 10.00% 13.64% 11.42% Tier 1 risk-based capital 6.00% 8.00% 12.81% 10.58% Common equity tier 1 capital 4.50% 6.50% 12.29% 10.59% Leverage ratio 4.00% 5.00% 9.01% 7.42% See Note 22 of the Consolidated Financial Statements included in Part II.
Minimum Required Capital Well-Capitalized Actual Ratio Company Actual Ratio Bank December 31, 2023 Total risk-based capital 8.00% 10.00% 12.35% 10.81% Tier 1 risk-based capital 6.00% 8.00% 11.43% 9.88% Common equity tier 1 capital 4.50% 6.50% 10.98% 9.89% Leverage ratio 4.00% 5.00% 8.72% 7.51% See Note 22 of the Consolidated Financial Statements included in Part II.
The decrease in potential problem loans at December 31, 2022 from December 31, 2021 was primarily due to paydowns and credit risk upgrades to existing potential problem loans that were partially offset by the addition of new potential problem loans in 2022.
The increase in potential problem loans at December 31, 2023 from December 31, 2022 was primarily due to the addition of four new potential problem loans in 2023 that were partially offset by paydowns to existing potential problem loans.
The following summarizes OREO activity for the periods indicated: (In Thousands) 2022 2021 2020 Balance, beginning of the year $5,638 $7,289 $7,043 Transfers from loans — 274 652 Proceeds from the sale of other real estate owned (5,224) (2,610) (797) (Loss) Gain on sale of other real estate owned, net (414) 685 391 Balance, end of year — 5,638 7,289 Government guarantees — (1,279) (1,279) Balance, end of year, net of government guarantees $— $4,359 $6,010 The Company made a $1.0 million loan in 2021 to facilitate the sale of OREO in 2021, but did not make any loans to facilitate the sale of OREO in 2022.
The Company received proceeds from the guarantee in the third quarter of 2023 which were recorded as a gain on sale of OREO. 54 The following summarizes OREO activity for the periods indicated: (In Thousands) 2023 2022 2021 Balance, beginning of the year $— $5,638 $7,289 Transfers from loans 273 — 274 Proceeds from the sale of other real estate owned (1,079) (5,224) (2,610) Gain (loss) on sale of other real estate owned, net 929 (414) 685 Impairment on other real estate owned (123) — — Balance, end of year — — 5,638 Government guarantees — — (1,279) Balance, end of year, net of government guarantees $— $— $4,359 The Company made a $1.0 million loan in 2021 to facilitate the sale of OREO in 2021, but did not make any loans to facilitate the sale of OREO in 2022 or 2023.
The following tables show the allocation of the ACL and the percent of loans in each category to total loans and the ratio of net loan charge-offs to average loans outstanding by loan segment for the years indicated: 2022 % of Loans (1) Net loan charge-offs (recoveries) to average loans (In Thousands) Amount Commercial & industrial loans $2,914 25 % (0.26) % Commercial real estate: Owner occupied properties 3,094 23 % (0.02) % Non-owner occupied and multifamily properties 3,615 32 % — % Residential real estate: 1-4 family residential properties secured by first liens 1,413 5 % (0.01) % 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 389 1 % (0.19) % 1-4 family residential construction loans 312 3 % — % Other construction, land development and raw land loans 1,803 7 % — % Obligations of states and political subdivisions in the US 79 2 % — % Agricultural production, including commercial fishing 145 2 % (0.05) % Consumer loans 68 — % (0.02) % Other loans 6 — % — % Total $13,838 100 % (0.08) % 1 Represents percentage of this category of loans to total portfolio loans. 2021 % of Loans (1) Net loan charge-offs (recoveries) to average loans (In Thousands) Amount Commercial & industrial loans $3,027 33 % 0.21 % Commercial real estate: Owner occupied properties 3,176 21 % — % Non-owner occupied and multifamily properties 2,930 31 % — % Residential real estate: 1-4 family residential properties secured by first liens 439 2 % — % 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 215 1 % (0.21) % 1-4 family residential construction loans 120 3 % — % Other construction, land development and raw land loans 1,635 6 % — % Obligations of states and political subdivisions in the US 32 1 % — % Agricultural production, including commercial fishing 91 2 % (0.15) % Consumer loans 67 — % (0.27) % Other loans 7 — % — % Total $11,739 100 % 0.07 % 1 Represents percentage of this category of loans to total portfolio loans.
The following tables show the allocation of the ACL and the percent of loans in each category to total loans and the ratio of net loan charge-offs to average loans outstanding by loan segment for the years indicated: 2023 % of Loans (1) Net loan charge-offs (recoveries) to average loans (In Thousands) Amount Commercial & industrial loans $3,438 24 % (0.03) % Commercial real estate: Owner occupied properties 2,867 20 % — % Non-owner occupied and multifamily properties 3,294 29 % — % Residential real estate: 1-4 family residential properties secured by first liens 3,470 11 % 0.04 % 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 551 2 % (0.08) % 1-4 family residential construction loans 191 2 % — % Other construction, land development and raw land loans 3,127 8 % — % Obligations of states and political subdivisions in the US 80 2 % — % Agricultural production, including commercial fishing 168 2 % — % Consumer loans 81 — % 0.39 % Other loans 3 — % — % Total $17,270 100 % — % 1 Represents percentage of this category of loans to total portfolio loans. 55 2022 % of Loans (1) Net loan charge-offs (recoveries) to average loans (In Thousands) Amount Commercial & industrial loans $2,914 25 % (0.26) % Commercial real estate: Owner occupied properties 3,094 23 % (0.02) % Non-owner occupied and multifamily properties 3,615 32 % — % Residential real estate: 1-4 family residential properties secured by first liens 1,413 5 % (0.01) % 1-4 family residential properties secured by junior liens and revolving secured by 1-4 family first liens 389 1 % (0.19) % 1-4 family residential construction loans 312 3 % — % Other construction, land development and raw land loans 1,803 7 % — % Obligations of states and political subdivisions in the US 79 2 % — % Agricultural production, including commercial fishing 145 2 % (0.05) % Consumer loans 68 — % (0.02) % Other loans 6 — % — % Total $13,838 100 % (0.08) % 1 Represents percentage of this category of loans to total portfolio loans.
The ACL for loans increased to $13.8 million at December 31, 2022 compared to $11.7 million at December 31, 2021 primarily due to an increase in loan balances, net of guarantees, as well as a slight increase in expected future loss rates.
The ACL for loans increased to $17.3 million at December 31, 2023 compared to $13.8 million at December 31, 2022 primarily due to an increase in loan balances, net of guarantees, as well as a slight increase in expected future loss rates due to a decrease in management's assumptions about prepayment and curtailment rates.
The following table sets forth the average balances outstanding and average interest rates for each major category of our deposits, for the periods indicated: 2022 2021 2020 Average balance Average rate paid Average balance Average rate paid Average balance Average rate paid (In Thousands) Interest-bearing demand accounts $701,679 0.30 % $575,298 0.08 % $387,416 0.16 % Money market accounts 318,375 0.25 % 264,344 0.16 % 219,025 0.32 % Savings accounts 344,349 0.16 % 323,131 0.15 % 257,292 0.28 % Certificates of deposit 169,931 0.62 % 178,215 0.94 % 176,873 1.83 % Total interest-bearing accounts 1,534,334 0.29 % 1,340,988 0.23 % 1,040,606 0.51 % Noninterest-bearing demand accounts 820,547 784,092 597,610 Total average deposits $2,354,881 $2,125,080 $1,638,216 53 The Company's mix of deposits continues to contribute to a low cost of funds with balances in transaction accounts representing 92% of total deposits at December 31, 2022 and 93% at December 31, 2021.
The following table sets forth the average balances outstanding and average interest rates for each major category of our deposits, for the periods indicated: 2023 2022 2021 Average balance Average rate paid Average balance Average rate paid Average balance Average rate paid (In Thousands) Interest-bearing demand accounts $809,219 1.61 % $701,679 0.30 % $575,298 0.08 % Money market accounts 250,072 1.28 % 318,375 0.25 % 264,344 0.16 % Savings accounts 278,951 0.47 % 344,349 0.16 % 323,131 0.15 % Certificates of deposit 276,144 3.25 % 169,931 0.62 % 178,215 0.94 % Total interest-bearing accounts 1,614,386 1.64 % 1,534,334 0.29 % 1,340,988 0.23 % Noninterest-bearing demand accounts 749,859 820,547 784,092 Total average deposits $2,364,245 $2,354,881 $2,125,080 57 The Company's mix of deposits continues to contribute to a low cost of funds with balances in transaction accounts representing 87% of total deposits at December 31, 2023 and 92% at December 31, 2022.
The ongoing impacts of the CECL methodology will be dependent upon changes in economic conditions and forecasts, as well as loan portfolio composition, quality, and duration. 52 The following table sets forth information regarding changes in the ACL for unfunded commitments for the years indicated: (In Thousands) 2022 2021 Balance at beginning of period $1,096 $187 Impact of adopting ASC 326 — 1,229 Adjusted balance, beginning of period 1,096 1,416 (Benefit) provision for credit losses 874 (320) Balance at end of period $1,970 $1,096 While management believes that it uses the best information available to determine the ACL, unforeseen market conditions and other events could result in an adjustment to the ACL, and net income could be significantly affected if circumstances differed substantially from the assumptions used in making the final determination of the ACL.
The following table sets forth information regarding changes in the ACL for unfunded commitments for the years indicated: (In Thousands) 2023 2022 2021 Balance at beginning of period $1,970 $1,096 $187 Provision for credit losses 448 874 (320) Balance at end of period $2,418 $1,970 $1,096 While management believes that it uses the best information available to determine the ACL, unforeseen market conditions and other events could result in an adjustment to the ACL, and net income could be significantly affected if circumstances differed substantially from the assumptions used in making the final determination of the ACL.
The following table sets forth the amount outstanding of certificates of deposits in amounts of $250,000 or more by time remaining until maturity and percentage of total deposits as of December 31, 2022: Time Certificates of Deposits of $250,000 or More Percent of Total Deposits (In Thousands) Amount Amounts maturing in: Three months or less $20,964 27 % Over 3 through 6 months 6,613 9 % Over 6 through 12 months 20,321 26 % Over 12 months 29,629 38 % Total $77,527 100 % The Company offers the Certificate of Deposit Account Registry Service® (CDARS®) as a member of Promontory Interfinancial Network, LLCSM (Network).
The following table sets forth the amount outstanding of certificates of deposits in amounts of $250,000 or more by time remaining until maturity and percentage of total deposits as of December 31, 2023: Time Certificates of Deposits of $250,000 or More Percent of Total Deposits (In Thousands) Amount Amounts maturing in: Three months or less $17,007 12 % Over 3 through 6 months 16,576 12 % Over 6 through 12 months 78,637 55 % Over 12 months 29,925 21 % Total $142,145 100 % The Company offers the Certificate of Deposit Account Registry Service® (CDARS®) as a member of Promontory Interfinancial Network, LLCSM (Network).
Income Taxes The provision for income taxes decreased $2.7 million or 26%, to $7.8 million in 2022 as compared to 2021. The decrease in 2022 is primarily due to lower pretax income.
Income Taxes The provision for income taxes decreased $1.5 million or 20%, to $6.2 million in 2023 as compared to 2022. The decrease in 2023 is primarily due to lower pretax income.
Financing activities provided cash in 2021 due to increases in deposits that were only partially offset by the payment of cash dividends to shareholders and the repurchase of shares of the Company's common stock. Throughout our history, the Company has periodically repurchased for cash a portion of its shares of common stock in the open market.
Financing activities used cash in 2022 due to a decrease in deposits as wells as payment of cash dividends to shareholders and the repurchase of shares of the Company's common stock. Throughout our history, the Company has periodically repurchased for cash a portion of its shares of common stock in the open market.
The Company entered into an interest rate swap in the third quarter of 2017 to hedge the variability in cash flows arising out of its junior subordinated debentures, by swapping the cash flows with an interest rate swap which receives floating and pays fixed. The Company has designated this interest rate swap as a hedging instrument.
At December 31, 2023, the securities had an interest rate of 7.02%. The Company entered into an interest rate swap in the third quarter of 2017 to hedge the variability in cash flows arising out of its junior subordinated debentures, by swapping the cash flows with an interest rate swap which receives floating and pays fixed.
Net cash used by investing activities was $405.6 million in 2022 primarily due to purchases of available for sale and held to maturity securities and to a lesser extent, increases in loans and purchased receivables.
Net cash used by investing activities was $255.1 million in 2023 primarily due to increases in loans and to a lesser extent, purchases of available for sale and marketable equity securities and an increase in purchased receivables.
Net cash used by investing activities was $159.1 million in 2021 primarily due to purchases of available for sale and held to maturity securities, net of proceeds from the maturity of available for sale securities. Financing activities used cash of $59.0 million in 2022 and provided cash of $577.0 million in 2021.
Net cash used by investing activities was $405.6 million in 2022 primarily due to purchases of available for sale and held to maturity securities. Financing activities provided cash of $75.3 million in 2023 and used cash of $59.0 million in 2022.
Insurance expense, data processing expense, and professional and outside services increased in 2022 as compared to 2021 due to increased FDIC insurance costs associated with asset growth, increased customer and transaction volume, and increased investment management fees attributable to the growth in our investment portfolio.
Data processing expense, occupancy expense, insurance expense, marketing expense and professional and outside services also increased in 2023 compared to 2022 due to the increase in branch locations, increased customer and transaction volume, increased FDIC insurance costs associated with asset growth, and increased legal and investment management fees.
Refer to Note 1 of the notes to Consolidated Financial 51 Statements included in Part II. Item 8 of this report for detailed discussion regarding the ACL methodology for loans and unfunded commitments.
Allowance for Credit Losses The determination of the amount of the ACL is complex and involves a high degree of judgment and subjectivity. Refer to Note 1 of the notes to Consolidated Financial Statements included in Part II. Item 8 of this report for detailed discussion regarding the ACL methodology for loans and unfunded commitments.
Purchased Receivables Purchased receivable balances increased at December 31, 2022 to $20.0 million from $7.0 million at December 31, 2021, and year-to-date average purchased receivable balances were $7.0 million and $12.4 million in 2022 and 2021, respectively. Purchased receivable income was $2.0 million and $2.3 million in 2022 and 2021, respectively.
Purchased Receivables Purchased receivable balances increased at December 31, 2023 to $36.8 million from $20.0 million at December 31, 2022, and year-to-date average purchased receivable balances were $24.8 million and $7.0 million in 2023 and 2022, respectively.
Management's Discussion and Analysis of Financial Condition and Results of Operations" of this report. 37 Reconciliation of total shareholders' equity to tangible common shareholders’ equity (Non-GAAP) and total assets to tangible assets: (In Thousands) 2022 2021 2020 2019 2018 2017 Total shareholders' equity $218,629 $237,817 $221,575 $207,117 $205,947 $192,802 Total assets 2,674,318 2,724,719 2,121,798 1,643,996 1,502,988 1,518,596 Total shareholders' equity to total assets ratio 8.18 % 8.73 % 10.44 % 12.60 % 13.70 % 12.70 % (In Thousands) 2022 2021 2020 2019 2018 2017 Total shareholders' equity $218,629 $237,817 $221,575 $207,117 $205,947 $192,802 Less: goodwill and other intangible assets, net 15,984 16,009 16,046 16,094 16,154 16,224 Tangible common shareholders' equity $202,645 $221,808 $205,529 $191,023 $189,793 $176,578 Total assets $2,674,318 $2,724,719 $2,121,798 $1,643,996 $1,502,988 $1,518,596 Less: goodwill and other intangible assets, net 15,984 16,009 16,046 16,094 16,154 16,224 Tangible assets $2,658,334 $2,708,710 $2,105,752 $1,627,902 $1,486,834 $1,502,372 Tangible common equity to tangible assets ratio 7.62 % 8.19 % 9.76 % 11.73 % 12.76 % 11.75 % Reconciliation of tangible book value per share (Non-GAAP) to book value per share (In thousands, except per share data) 2022 2021 2020 2019 2018 2017 Total shareholders' equity $218,629 $237,817 $221,575 $207,117 $205,947 $192,802 Divided by common shares outstanding 5,700,728 6,014,813 6,251,004 6,558,809 6,883,216 6,871,963 Book value per share $38.35 $39.54 $35.45 $31.58 $29.92 $28.06 (In thousands, except per share data) 2022 2021 2020 2019 2018 2017 Total shareholders' equity $218,629 $237,817 $221,575 $207,117 $205,947 $192,802 Less: goodwill and intangible assets, net 15,984 16,009 16,046 16,094 16,154 16,224 Tangible book value $202,645 $221,808 $205,529 $191,023 $189,793 $176,578 Divided by common shares outstanding 5,700,728 6,014,813 6,251,004 6,558,809 6,883,216 6,871,963 Tangible book value per share $35.55 $36.88 $32.88 $29.12 $27.57 $25.70 38 Reconciliation of tax-equivalent net interest margin (Non-GAAP) to net interest margin (In Thousands) 2022 2021 2020 2019 2018 2017 Net interest income (9) $95,115 $80,827 $70,665 $64,442 $61,208 $57,678 Divided by average interest-bearing assets 2,469,383 2,260,778 1,758,839 1,386,557 1,346,449 1,367,203 Net interest margin 3.85 % 3.58 % 4.02 % 4.65 % 4.55 % 4.22 % (In Thousands) 2022 2021 2020 2019 2018 2017 Net interest income (9) $95,115 $80,827 $70,665 $64,442 $61,208 $57,678 Plus: reduction in tax expense related to tax-exempt interest income 939 489 613 722 726 872 $96,054 $81,316 $71,278 $65,164 $61,934 $58,550 Divided by average interest-bearing assets 2,469,383 2,260,778 1,758,839 1,386,557 1,346,449 1,367,203 Tax-equivalent net interest margin 3.89 % 3.60 % 4.05 % 4.70 % 4.60 % 4.28 % Calculation of efficiency ratio (In Thousands) 2022 2021 2020 2019 2018 2017 Net interest income (9) $95,115 $80,827 $70,665 $64,442 $61,208 $57,678 Other operating income 34,077 52,263 63,328 37,346 32,167 40,474 Total revenue 129,192 133,090 133,993 101,788 93,375 98,152 Other operating expense 88,852 89,196 89,114 76,838 69,800 71,153 Less intangible asset amortization 25 37 48 60 70 100 Adjusted other operating expense $88,827 $89,159 $89,066 $76,778 $69,730 $71,053 Efficiency ratio 68.76 % 66.99 % 66.47 % 75.43 % 74.68 % 72.39 % 9 Amount represents net interest income before provision for loan losses.
Management's Discussion and Analysis of Financial Condition and Results of Operations" of this report. 41 Reconciliation of total shareholders' equity to tangible common shareholders’ equity (Non-GAAP) and total assets to tangible assets: (In Thousands) 2023 2022 2021 2020 2019 2018 Total shareholders' equity $234,718 $218,629 $237,817 $221,575 $207,117 $205,947 Total assets 2,807,497 2,674,318 2,724,719 2,121,798 1,643,996 1,502,988 Total shareholders' equity to total assets ratio 8.36 % 8.18 % 8.73 % 10.44 % 12.60 % 13.70 % (In Thousands) 2023 2022 2021 2020 2019 2018 Total shareholders' equity $234,718 $218,629 $237,817 $221,575 $207,117 $205,947 Less: goodwill and other intangible assets, net 15,967 15,984 16,009 16,046 16,094 16,154 Tangible common shareholders' equity $218,751 $202,645 $221,808 $205,529 $191,023 $189,793 Total assets $2,807,497 $2,674,318 $2,724,719 $2,121,798 $1,643,996 $1,502,988 Less: goodwill and other intangible assets, net 15,967 15,984 16,009 16,046 16,094 16,154 Tangible assets $2,791,530 $2,658,334 $2,708,710 $2,105,752 $1,627,902 $1,486,834 Tangible common equity to tangible assets ratio 7.84 % 7.62 % 8.19 % 9.76 % 11.73 % 12.76 % Reconciliation of tangible book value per share (Non-GAAP) to book value per share (In thousands, except per share data) 2023 2022 2021 2020 2019 2018 Total shareholders' equity $234,718 $218,629 $237,817 $221,575 $207,117 $205,947 Divided by common shares outstanding 5,513,459 5,700,728 6,014,813 6,251,004 6,558,809 6,883,216 Book value per share $42.57 $38.35 $39.54 $35.45 $31.58 $29.92 (In thousands, except per share data) 2023 2022 2021 2020 2019 2018 Total shareholders' equity $234,718 $218,629 $237,817 $221,575 $207,117 $205,947 Less: goodwill and intangible assets, net 15,967 15,984 16,009 16,046 16,094 16,154 Tangible book value $218,751 $202,645 $221,808 $205,529 $191,023 $189,793 Divided by common shares outstanding 5,513,459 5,700,728 6,014,813 6,251,004 6,558,809 6,883,216 Tangible book value per share $39.68 $35.55 $36.88 $32.88 $29.12 $27.57 42 Reconciliation of tax-equivalent net interest margin (Non-GAAP) to net interest margin (In Thousands) 2023 2022 2021 2020 2019 2018 Net interest income (9) $103,256 $95,115 $80,827 $70,665 $64,442 $61,208 Divided by average interest-bearing assets 2,492,240 2,469,383 2,260,778 1,758,839 1,386,557 1,346,449 Net interest margin 4.14 % 3.85 % 3.58 % 4.02 % 4.65 % 4.55 % (In Thousands) 2023 2022 2021 2020 2019 2018 Net interest income (9) $103,256 $95,115 $80,827 $70,665 $64,442 $61,208 Plus: reduction in tax expense related to tax-exempt interest income 1,576 939 489 613 722 726 $104,832 $96,054 $81,316 $71,278 $65,164 $61,934 Divided by average interest-bearing assets 2,492,240 2,469,383 2,260,778 1,758,839 1,386,557 1,346,449 Tax-equivalent net interest margin 4.21 % 3.89 % 3.60 % 4.05 % 4.70 % 4.60 % Reconciliation of efficiency ratio exclusive of intangible asset amortization (non-GAAP) to efficiency ratio.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

5 edited+2 added−1 removed19 unchanged
Biggest changeDue to the various assumptions used for this modeling and potential balance sheet strategies management may implement to mitigate interest rate risk, no assurance can be given that projections will reflect actual results. 62 The following table shows the estimated impact on net interest income under the stated interest rate scenarios: 1st Year Change in net interest income from base scenario Percentage change 2nd Year Change in net interest income from base scenario Percentage change (In Thousands) Scenario: Up 400 basis points $4,191 3.81 % $19,456 16.31 % Up 300 basis points $3,163 2.87 % $14,571 12.22 % Up 200 basis points $2,128 1.93 % $9,729 8.16 % Up 100 basis points $1,105 1.00 % $4,907 4.11 % Down 100 basis points ($4,646) (4.22) % ($8,749) (7.34) % Down 200 basis points ($9,605) (8.73) % ($17,946) (15.05) % Down 300 basis points ($14,351) (13.04) % ($27,180) (22.79) % Down 400 basis points ($17,812) (16.18) % ($32,080) (26.90) % The following table shows the estimated impact on net income under the stated interest rate scenarios.
Biggest changeDue to the various assumptions used for this modeling and potential balance sheet strategies management may implement to mitigate interest rate risk, no assurance can be given that projections will reflect actual results. 66 The following table shows the estimated impact on net interest income under the stated interest rate scenarios: 1st Year Change in net interest income from base scenario Percentage change 2nd Year Change in net interest income from base scenario Percentage change (In Thousands) Scenario: Up 400 basis points $11,643 10.09 % $27,745 21.21 % Up 300 basis points $8,744 7.58 % $20,758 15.87 % Up 200 basis points $5,868 5.08 % $13,870 10.61 % Up 100 basis points $3,058 2.65 % $7,131 5.45 % Down 100 basis points ($5,095) (4.41) % ($9,737) (7.44) % Down 200 basis points ($8,180) (7.09) % ($17,345) (13.26) % Down 300 basis points ($10,690) (9.26) % ($24,512) (18.74) % Down 400 basis points ($15,418) (13.36) % ($33,230) (25.41) % The following table shows the estimated impact on net income under the stated interest rate scenarios.
Generally, there are four sources of interest rate risk as described below: • Re-pricing Risk : Generally, re-pricing risk is the risk of adverse consequences from a change in interest rates that arises because of differences in the timing of when those interest rate changes affect an institution’s assets and liabilities. • Basis Risk : Basis risk is the risk of adverse consequences resulting from unequal changes in the spread between two or more rates for different instruments with the same maturity. 60 • Yield Curve Risk : Also called yield curve twist risk, yield curve risk is the risk of adverse consequences resulting from unequal changes in the spread between two or more rates for different maturities for the same instrument. • Option Risk : In banking, option risks are known as borrower options to prepay loans and depositor options to make deposits, withdrawals, and early redemptions.
Generally, there are four sources of interest rate risk as described below: • Re-pricing Risk : Generally, re-pricing risk is the risk of adverse consequences from a change in interest rates that arises because of differences in the timing of when those interest rate changes affect an institution’s assets and liabilities. • Basis Risk : Basis risk is the risk of adverse consequences resulting from unequal changes in the spread between two or more rates for different instruments with the same maturity. • Yield Curve Risk : Also called yield curve twist risk, yield curve risk is the risk of adverse consequences resulting from unequal changes in the spread between two or more rates for different maturities for the same instrument. • Option Risk : In banking, option risks are known as borrower options to prepay loans and depositor options to make deposits, withdrawals, and early redemptions.
Additional information regarding the Company’s customer interest rate swap program is presented in Note 19 of the Notes to Consolidated Financial Statements included in Part II. Item 8 of this report.
Additional information regarding the Company’s customer interest rate swap program is presented in Note 19 of the Notes to Consolidated Financial Statements included in Part II.
The following table sets forth the estimated maturity or repricing, and the resulting interest rate gap, of our interest-earning assets (which exclude nonaccrual loans and net unearned loan fees) and interest-bearing liabilities at December 31, 2022.
Item 8 of this report. 65 The following table sets forth the estimated maturity or repricing, and the resulting interest rate gap, of our interest-earning assets (which exclude nonaccrual loans and net unearned loan fees) and interest-bearing liabilities at December 31, 2023.
The trends in the estimated impact on net income under the stated interest rate scenarios differ from the table above primarily due to the inclusion of the estimated impact of changes in other operating income and expense related to mortgage banking activities: 1st Year Change in net income from base scenario Percentage change 2nd Year Change in net income from base scenario Percentage change (In Thousands) Scenario: Up 400 basis points ($1,658) (4.37) % $10,417 23.68 % Up 300 basis points ($1,228) (3.24) % $7,796 17.72 % Up 200 basis points ($803) (2.12) % $5,209 11.84 % Up 100 basis points ($369) (0.97) % $2,636 6.00 % Down 100 basis points ($576) (1.52) % ($3,815) (8.67) % Down 200 basis points ($1,401) (3.69) % ($7,983) (18.15) % Down 300 basis points ($2,056) (5.42) % ($12,181) (27.69) % Down 400 basis points ($1,690) (4.45) % ($12,955) (29.45) % 63
The trends in the estimated impact on net income under the stated interest rate scenarios differ from the table above primarily due to the inclusion of the estimated impact of changes in other operating income and expense related to mortgage banking activities: 1st Year Change in net income from base scenario Percentage change 2nd Year Change in net income from base scenario Percentage change (In Thousands) Scenario: Up 400 basis points $4,190 11.49 % $16,506 35.68 % Up 300 basis points $3,152 8.64 % $12,341 26.68 % Up 200 basis points $2,131 5.85 % $8,251 17.84 % Up 100 basis points $1,162 3.19 % $4,276 9.24 % Down 100 basis points ($915) (2.51) % ($4,448) (9.61) % Down 200 basis points ($262) (0.72) % ($7,304) (15.79) % Down 300 basis points $840 2.30 % ($9,799) (21.18) % Down 400 basis points $211 0.58 % ($13,487) (29.15) % 67
Removed
The amounts shown below could be significantly affected by external factors such as changes in prepayment assumptions, early withdrawals of deposits, and competition. 61 Estimated maturity or repricing at December 31, 2022 (In Thousands) Within 1 year 1-5 years >5 years Total Interest -Earning Assets: Interest bearing deposits in other banks $231,603 $— $— $231,603 Investments securities and FHLB Stock 173,874 554,461 — 728,335 Loans 548,907 800,277 154,135 1,503,319 Loans held for sale 27,538 — — 27,538 Total interest-earning assets $981,922 $1,354,738 $154,135 $2,490,795 Percent of total interest-earning assets 39.42 % 54.39 % 6.19 % 100.00 % Interest-Bearing Liabilities: Interest-bearing demand accounts $767,686 $— $— $767,686 Money market accounts 308,317 — — 308,317 Savings accounts 320,917 — — 320,917 Certificates of deposit 130,892 60,648 1,317 192,857 Securities sold under repurchase agreements — — — — Borrowings 882 3,751 9,462 14,095 Junior subordinated debentures — — 10,310 10,310 Total interest-bearing liabilities $1,528,694 $64,399 $21,089 $1,614,182 Percent of total interest-bearing liabilities 94.70 % 3.99 % 1.31 % 100.00 % Interest sensitivity gap ($546,772) $1,290,339 $133,046 $876,613 Cumulative interest sensitivity gap ($546,772) $743,567 $876,613 Cumulative interest sensitivity gap as a percentage of total interest-earning assets (22.0) % 29.9 % 35.2 % As stated previously, certain shortcomings, including those described below, are inherent in the method of analysis presented in the foregoing table.
Added
The amounts shown below could be significantly affected by external factors such as changes in prepayment assumptions, early withdrawals of deposits, and competition.
Added
Estimated maturity or repricing at December 31, 2023 (In Thousands) Within 1 year 1-5 years >5 years Total Interest -Earning Assets: Interest bearing deposits in other banks $91,073 $— $— $91,073 Investments securities and FHLB Stock 288,435 402,384 — 690,819 Loans 805,033 785,623 201,328 1,791,984 Loans held for sale 31,974 — — 31,974 Total interest-earning assets $1,216,515 $1,188,007 $201,328 $2,605,850 Percent of total interest-earning assets 46.68 % 45.59 % 7.73 % 100.00 % Interest-Bearing Liabilities: Interest-bearing demand accounts $927,291 $— $— $927,291 Money market accounts 221,492 — — 221,492 Savings accounts 255,338 — — 255,338 Certificates of deposit 271,622 58,312 1,317 331,251 Securities sold under repurchase agreements — — — — Borrowings 940 3,999 8,736 13,675 Junior subordinated debentures — — 10,310 10,310 Total interest-bearing liabilities $1,676,683 $62,311 $20,363 $1,759,357 Percent of total interest-bearing liabilities 95.30 % 3.54 % 1.16 % 100.00 % Interest sensitivity gap ($460,168) $1,125,696 $180,965 $846,493 Cumulative interest sensitivity gap ($460,168) $665,528 $846,493 Cumulative interest sensitivity gap as a percentage of total interest-earning assets (17.7) % 25.5 % 32.5 % As stated previously, certain shortcomings, including those described below, are inherent in the method of analysis presented in the foregoing table.

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